United States v. Articles of Drug

• Decision Date: 02 April 1986
• Docket Number: No. CV-84-0-206,CV-84-0-323.,CV-84-0-206
• Citation: 633 F. Supp. 316
• Parties: UNITED STATES of America, Plaintiff, v. ARTICLES OF DRUG, et al., Defendants. UNITED STATES of America, Plaintiff, v. MIDWEST PHARMACEUTICALS, INC., et al., Defendants.
• Court: U.S. District Court — District of Nebraska

633 F. Supp. 316

UNITED STATES of America, Plaintiff, v. ARTICLES OF DRUG, et al., Defendants.

UNITED STATES of America, Plaintiff, v. MIDWEST PHARMACEUTICALS, INC., et al., Defendants.

Nos. CV-84-0-206, CV-84-0-323.

United States District Court, D. Nebraska.

April 2, 1986.

Paul Johns, Asst. U.S. Atty., Omaha, Neb., William Spiller, Food & Drug Admin., Washington, D.C., for plaintiff.

John M. O'Connor, DeForest & Duer, New York City, for defendants.

MEMORANDUM OPINION

STROM, District Judge.

This matter is before the Court for decision after trial to the Court of consolidated actions for condemnation of seized products pursuant to 21 U.S.C. § 334(a) and for injunction pursuant to 21 U.S.C. § 332.

GENERAL FACTS

On April 5, 1984, law enforcement officials from the United States Food and Drug Administration seized approximately fifteen tons of drug products from Midwest Pharmaceuticals, Inc. (defendant and claimant herein). Plaintiff (hereinafter "the government") contends that the drug products are misbranded within the meaning of 21 U.S.C. § 352(i)(2) which prohibits the sale of "imitation" drugs, and are thus subject to in rem seizure under the provisions of 21 U.S.C. § 334. The government also seeks to enjoin Midwest and its president, Steven Sommers, under 21 U.S.C. § 332(a), from selling the same or similar products in the future. Midwest is claimant of the products.

PROCEDURAL HISTORY

On April 5, 1984, the government filed a complaint for forfeiture of certain articles of drugs. The complaint (as amended) alleged that the drug products described in the caption were misbranded in that they were "imitations" of another drug in violation of 21 U.S.C. § 352(i)(2) by virtue of physical appearance, physiological effects, and the manner in which they were advertised, marketed and distributed and sold. Midwest filed a claim for the seized drug products, an answer and counterclaim. The counterclaim alleged harassment, abuse of process and negligence on the part of the government.

The government additionally filed a separate action for injunctive relief against Midwest and its president alleging continued marketing of drugs by Midwest in violation of § 352(i)(2) and seeking an order from the Court enjoining future marketing. Defendants Midwest and Sommers answered, denying the government's allegations. The government's motion for a temporary restraining order in that case was denied (Filing No. 64). The two actions were consolidated on August 21, 1984, for pretrial discovery and trial.

The government thereafter moved for dismissal of claimant's counterclaims in the in rem action asserting that seizure actions taken by the government were discretionary functions exempted under the Federal Tort Claims Act, 28 U.S.C. § 2680(a). Midwest moved for summary judgment in its favor on both actions asserting that 21 U.S.C. § 352(i)(2) is unconstitutionally vague, that the term "imitation" in 21 U.S.C. § 352(i)(2) must be equated with "counterfeit," and that the drugs seized were not "counterfeit" because of differences in markings.

The matter was referred to U.S. Magistrate Peck for findings and recommendations pursuant to 28 U.S.C. § 636. Magistrate Peck recommended the government's motion to dismiss should be sustained, claimant's counterclaims dismissed and Midwest's motions for summary judgment should be denied. The magistrate found § 352(i)(2) was not unconstitutionally vague and the word "imitation," which is the practice of passing off one substance as a different substance, is not equated with "counterfeit," which refers to simulating another's identifying mark on a product (Filing No. 49).

Midwest objected to the findings and recommendations of the magistrate, asserting that a distributor may not be enjoined for the alleged improper actions of persons over whom the distributor has no control. The late Honorable Albert G. Schatz rejected that argument, holding the doctrine of extended or contributory liability applicable in an action alleging violations of the Food, Drug and Cosmetic Act, 21 U.S.C. § 301, et seq. The Court further held that manufacturers and distributors may be held contributorily liable for alleged violations of 21 U.S.C. § 352(i)(2) if they intentionally induced another to commit any such violation, or if they knew or reasonably could have anticipated that a substantial portion of their products would be passed off as controlled substances in the chain of distribution. The Court also adopted the recommendations of the magistrate. United States v. Articles of Drug, 601 F.Supp. 392 (D.Neb.1984).

The case went to trial on February 25, 1986. The issues remaining for decision by the Court at the time of trial were: (1) whether the products seized were "imitations" under the purview of § 352(i)(2), thus subject to seizure under 21 U.S.C. § 331(a); (2) whether Midwest intentionally induced another to violate § 352(i)(2) or knew or reasonably should have anticipated that a substantial portion of its products would be passed off as controlled substances in the chain of distribution; and (3) whether defendants should be enjoined from marketing such products in the future.

FINDINGS OF FACT

The Court adopts findings of fact set forth in its earlier discussion. The Court further finds:

1) Midwest Pharmaceuticals, Inc., is incorporated in the State of Iowa; it does business as Midwest Pharmaceuticals, B & S Distributors and U.S.A. Drugs.

2) Defendant Steven F. Sommers is president of Midwest. He has been president since January 1, 1984. Robert Liebert is former president. Since January 1, 1984, Sommers and members of his household have been sole stockholders and owners of Midwest. Sommers has no formal training in pharmacy or pharmacology.

3) Midwest was located in Council Bluffs, Iowa, from 1980 to June 30, 1982. Iowa's Imitation Controlled Substance statute took effect on July 1, 1982. Midwest was located in Omaha, Nebraska, from June 30, 1982, to May, 1985. Nebraska's Imitation Controlled Substances statute became effective on May 23, 1985. Midwest is presently located in Council Bluffs, Iowa.

4) Midwest markets capsule and tablet over-the-counter drug products containing caffeine, ephedrine or phenylpropanolamine. Midwest also markets powdery and sticky substances characterized by Midwest as incense.

5) Midwest sells its products by mail order; products are sent to customers by mail or U.P.S. after receiving orders by telephone. Payment is usually received c.o.d.

6) Midwest buys ninety-eight per cent of its products from Gemini Pharmaceuticals in New York. At the time of the seizure in April, 1984, Midwest was holding its products for sale after shipment in interstate commerce.

7) Midwest sells its products in bottles containing one hundred dosage units, two hundred fifty dosage units and one thousand dosage units. Ninety-two per cent of the containers seized by the FDA in April, 1984, were containers of one thousand dosage units. Approximately four times as many dosage units were packaged in one thousand lot bottles than in one hundred lot bottles. According to testimony of Mary Starr, a Midwest employee, Midwest presently averages weekly sales of three hundred thousand dosages packaged in one thousand lot containers and eight thousand dosages packaged in one hundred lot containers. FDA Inspector Nielson testified that a review of Midwest's invoices from January through December, 1984, showed that Midwest sold 245 million dosage units during that time.

8) Midwest advertises its products in magazines such as "Stag," (Exhibit 72), which bears the logos "Hard Core for '84" and "Triple XXX Porn Review;" "Partner," (Exhibit 73), subtitled "King of the Skin Mags," "Iron Horse," (Exhibit 75), "Club," (Exhibits 78 and 78A); "High Times," (Exhibit 70 and Exhibit 60); and "Hustler."

9) Midwest's advertisements (Exhibits 70, 72, 73, 75 and 75A, 78 and 78A), contain descriptions of their products as "legal body stimulants" and "sleep aids." Most contain pictures of the capsules and tablets with descriptive phrases such as ".357 Magnum," "20/20," "30/30," "white mole," "black mole," "mini-pink heart," and "mini-white — thick or thin." None contain any information as to the ingredients, indications or contra-indications of the products.

10) In 1982, Midwest enclosed product cards in customer orders which showed pictures of their products as a form of advertisement (Exhibits 80, 81 and 82). None contained any information regarding ingredients, indications or contraindications of the products other than the phrase "stimulants and sleep aids." One product card (Exhibit 80) showed, among other capsules and tablets, yellow capsules with markings "RJS" or "RJ8" and "RUS." Those capsules are crossed off a later product card (Exhibit 81).

11) In 1980, Steve Sommers and Bob Liebert encouraged a customer, Ken Maschmeier, to sell their products by passing them off as controlled substances. In 1981 and 1982, Daniel Bengtson, another Midwest customer, told Sommers and Liebert that he was selling Midwest's products as controlled substances. He misrepresented and sold a white powdery substance as cocaine, hard yellow tablets imprinted "Lemmon 714" as the controlled substance "Quaalude", and small white double-scored tablets as amphetamine.

12) Amphetamines, barbiturates, tranquilizers, cocaine and hashish are controlled substances. The products are either manufactured by legitimate pharmaceutical companies or clandestinely manufactured. The U.S. Drug Enforcement Agency (DEA) maintains a registry and reference library of samples of such substances. Exhibits 1, 2, 3, 4, 5, 6, 7, 10, 11, 12, 13, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27 and 32 are examples of controlled substances in capsule or tablet form.

13) The Court has visually examined the controlled substances, the drug products seized from Midwest in April, 1984, and the drug products seized in November, 1983. Most of the Midwest products...