Appendix — Amerisource Corp. v. United States, 129 S. Ct. 1611 (2009) (No. 08-497)

la

United States Court of Appeals for the

Federal Circuit

ENTERED: May 1, 2008

2007-5121

AMERISOURCE CORPORATION,

Plaintiff-Appellant,

Vv.

UNITED STATES,

Defendant-Appellee.

Ronald _J. Mann, Mitts Milavec, LLC, of

Philadelphia, Pennsylvania, argued for plaintiff-

appellant. With him on the brief was Maurice R.

Mitts.

Robert FE. 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.

Appealed from: United States Court of Federal Claims

Judge Lawrence M. Baskir

2a

United States Court of Appeals for the

Federal Circuit

2007-5121

AMERISOURCE CORPORATION,

Plaintiff-Appellant,

Vv.

UNITED STATES,

Defendant-Appellee.

Appeal from the United States Court of Federal

Claims in 04-CV-610, Judge Lawrence M. Baskir.

DECIDED: May 1, 2008

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

* Honorable William G. Young, District Judge, United States

District Court for the District of Massachusetts, sitting by

designation.

3a

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.

4a

After the government rebuffed AmeriSource’s

initial requests for return of the drugs, AmeriSource

filed a petition pursuant to Rule 41(e)! 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

1 The rule is now numbered Federal Rule of Criminal

Procedure 41(g). The substance of the rule has not changed.

5a

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.?

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

2 At oral argument, neither side offered an explanation for

why AmeriSource did not bring the Rule 41(e) petition in the

district court in West Virginia, the jurisdiction where the drugs

were seized.

6a

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. Id.

at 751. The Court of Federal Claims reasoned that

“It]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

3 Although the motions were originally filed as motions to

dismiss, the Court of Federal Claims determined that the parties

had submitted sufficient evidence in the form of affidavits to

convert them into motions for summary judgment. Aplt’s App.

at 6. Neither party challenges this conversion.

Ta

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 cur 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)....”).

8a

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

entitie 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” 1s 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.

9a

1. The government’s seizure of

property to enforce criminal laws

is a traditional exercisc 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 (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

(1967).4

4 The government’s broad power to seize and

retain physical evidence is not merely for the

convenience of the government. The rule of law

requires that the case against a defendant may not be

based upon rumor, speculation, or assertions made by

the sovereign’s representatives, but upon the

testimony of witnesses and physical evidence. This

system cannot function if property holders are free to

withhold property that might form a part of the

government’s case.

10a

Property seized and retained pursuant to the

police power is not taken for a “public use” in the

context of the Takings Clause. In Acadia Technology,

Inc. v. United States, 458 F.3d 1327, 1329 (Fed. Cir.

2006), United States Customs seized three shipments

of cooling fans for computer processors bearing

fabricated trademark stickers in violation of section

42 of the Lanham Act, 15 U.S.C. § 1124. The

government seized the fans pursuant to section

526(e) of the Tariff Act of 1930, 19 U.S.C. § 1526(e),

which “provides that any merchandise bearing a

counterfeit mark . . . that is imported into the United

States in violation of [the Lanham Act] ‘shall be

seized and, in the absence of the written consent of

the trademark owner, forfeited for violations of the

customs laws.” Acadia, 458 F.3d at 1329 (quoting

19 U.S.C. § 1826(e)). The government failed to

initiate forfeiture proceedings for four years and

ultimately agreed to dismiss the forfeiture action,

but did not return the fans until their only value was

as scrap. Id. Acadia brought a takings claim.

This court affirmed the dismissal by the Court

of Federal Claims, holding that “[t]he government’s

seizure, retention, and damaging of the property did

not give rise to an actionable claim for a taking...

because ‘items properly seized by the government

under its police power are not seized for ‘public use’

within the meaning of the Fifth Amendment.” Id. at

1332 (quoting Seay v. United States, 61 Fed. Cl. 32,

35 (2004)). We reasoned that “{a] Customs seizure of

goods suspected of bearing counterfeit marks is a

classic example of the government’s exercise of the

police power to condemn contraband or noxious

gocds, an exercise that has not been regarded as a

lla

taking for public use for which compensation must be

paid.” Id. In the instant case, the government seized

the pharmaceuticals in order to enforce criminal laws,

a government action clearly within the bounds of the

police power. Acadia therefore dictates that the

property here was “not seized for ‘public use’ within

the meaning of the Fifth Amendment.” Id.

As the Supreme Court explained in Bennis v.

Michigan, 516 U.S. 442 (1996), a case involving

governmental seizure of property for law enforcement

purposes, the inquiry remains focused on the

character of the government action, not the culpability

or innocence of the property holder. In Bennis, Mr.

Bennis was convicted of engaging in sexual activity

with a prostitute in an automobile, and a Michigan

court ordered the car forfeited pursuant to a state law

that permitted forfeiture of property that constituted

a public nuisance. Id. at 443-44. Mrs. Bennis alleged

that the forfeiture constituted a taking because she

owned a half-interest in the car and had no

knowledge of her husband’s illegal act. Id. at 444.

After determining that depriving Mrs. Bennis of her

half-interest did not violate due process, id. at 446,

the Court quickly disposed of Mrs. Bennis’s takings

argument on the ground that “[t]he government may

not be required to compensate an owner for property

which it has already lawfully acquired under the

exercise of governmental authority other than the

power of eminent domain,” id. at 452. Because the

state had acted in an effort to “deter illegal activity

that contributes to neighborhood Aeterioration and

unsafe streets,” it could divest Mrs. Bennis, an

innocent owner, of her property interest without

compensation. Id. at 453.

12a

Bennis suggests that so long as_ the

government’s exercise of authority was pursuant to

some power other than eminent domain, then the

plaintiff has failed to state a claim for compensation

under the Fifth Amendment. Id. The innocence of

the property owner does not factor into the

determination. Id.; see also United States v. One

1979 Cadillac Coupe De Ville, 833 F.2d 994, 1000

(Fed. Cir. 1987) (noting that an acquittal “did not

make the government seizure and possession [fof

property related to the crime with which the

defendant was charged but ultimately acquitted] any

less proper, or convert that seizure into a taking”);

Seay, 61 Fed. Cl. at 33-35 (holding that the subject of

a criminal investigation did not state a takings ctaim

even though a ruptured pipe at a government

storage facility had rendered his property nearly

worthless, and despite the fact that he was never

indicted).

As unfair as it may seem, under Acadia and

Bennis, the government’s decision to retain the drugs

until they expired - even though they were never

introduced in the case-in-chief against Pusztai and

Yates - did not result in a compensable taking. Once

the government has lawfully seized property to be

used as evidence in a criminal prosecution, it has

wide latitude to retain it so long as the investigation

continues, regardless of the effect on that property.

In Seay, for example, the government held Mr.

Seay’s property for six years before returning it in a

nearly worthless condition. 61 Fed. Cl. at 33. This

troubling use of authority was compounded by the

fact that the six-year investigation did not even yield

an indictment. Id. The Court of Federal Claims,

13a

however, reasoned that this seeming injustice was of

little moment because the government acted under

the authority of the police power. Id. at 35.

As expansive as the police power may be, it is

not without limit. The limits, however, are largely

imposed by the Due Process Clause. “Where public

officials ‘unlawfully seize or hold a citizen’s realty or

chattels, recoverable by appropriate action at law or

in equity, the true owner may ‘bring his possessory

action to reclaim that which is wrongfully withheld.”

Hayden, 387 U.S. at 308. The process described in

Rule 41(g), formerly Rule 41(e), affords the district

court wide latitude to conduct hearings and balance

the equities in order to determine whether the

government or a property owner ought retain

possession of the property during the course of a

criminal proceeding. Fed. R. Crim. P. 41(g). Thus,

Rule 41(g) is important not only because it ensures

that the government is acting pursuant to the police

power, but also because it guards against abuse of

the police power.

In the instant case, AmeriSource did not

contest the government’s position that the drugs

were connected to the crime or that it was necessary

for the government to introduce at least some of the

drugs into evidence. See Amerisource, 75 Fed. Cl. at

745. The magistrate judges unchallenged

determination that the government should keep the

drugs, id., satisfies us that there was at least some

nexus between AmeriSource’s pharmaceuticals and

the prosecution.

l4a

AmeriSource has taken great pains to

distinguish Acadia and Bennis on the ground that

the drugs in this case are not contraband. That

argument is beside the point. So long as there is a

tenable connection, the precise relationship of the

drugs to the crime is not relevant; rather, the

character of the government action is the sole

determining factor. The undisputed record in this

case, which includes the Rule 41(e) proceeding,

reveals that the United States Attorney seized the

drugs pursuant to the police power.

2. None of the cases AmeriSource cites

suggests that the takingsinquiry

hinges on the innocence of the

property owner

Notwithstanding Bennis and Acadia.

AmeriSource maintains that even when the

government acts pursuant to the police power a

taking can occur if the aggrieved property owner is

an innocent third party. Despite the considerable

appeal of this position as a matter of policy,

AmeriSource has failed to prove that such a taking

could occur in theory, much less that such a taking

occurred in this case. AmeriSource does not cite a

single case where seizure of property to be used as

evidence has resulted in a compensable taking under

the Fifth Amendment. The cases AmeriSource

proffers, Soverio v. United States, 967 F.2d 791, 793-

94 (2d Cir. 1992). Mora v. United States. 955 F.2d

156, 158-61 (2d Cir. 1992), United States v. Hall, 269

F.3d 940, 941-45 (8th Cir. 2001), United States v.

Martinson, 809 F.2d 1364, 1368-69 (9th Cir. 1987),

15a

and Lowther v. United States, 480 F.2d 1031, 1033

(10th Cir. 1973), simply do not support its position.

Soverio, Mora, and Martinson do not even

mention the Takings Clause. In Soverio, for

example, the Second Circuit held that the

-government’s destruction of certain property

belonging to a convicted felon did not moot the felon’s

Rule 41 petition. 967 F.2d at 793-94. Thus, Soverio

highlights the unremarkable principle that even

convicted felons have some property rights. If

anything, however, the case undermines

AmeriSource’s argument because the Second Circuit

did not even refer to the Fifth Amendment or the

Takings Clause, and the court assumed that motions

for return of destroyed evidence are properly

brought under the Federal Rules of Criminal

Procedure.

The remaining precedents are non-binding

and unpersuasive. In Lowther, a Tenth Circuit case

from 1973, the Bureau of Alcohol Tobacco and

Firearms (“A.T.F.”) destroyed a citizen’s guns despite

the fact that he had recently been acquitted of all

charges. 480 F.2d at 1032-33. The Tenth Circuit

concluded that the case “boil[ed] down [ } to the

government’s having destroyed appellee’s property

without having any authority in law to do it.

Consequently, the action of the Director of the

[A.T.F.] Division constituted a disregard of the

evidence and law in the case and was contrary to the

due process clause of the Fifth Amendment.” Id. at

1033-34. Lowther simply does not apply to the case

at bar. While the government’s decision to destroy

the guns despite Mr. Lowther’s acquittal was clearly

16a

in violation of due process, in this case, by contrast,

AmeriSource has not contested the legitimacy of the

government’s decision to seize or retain the property.

Instead, it merely requested compensation, which is

plainly not due under the Fifth Amendment.

In addition, AmeriSource seizes on ambiguous

language from inapplicable caselaw. For example,

AmeriSource cites Calero-Toledo v. Pearson Yacht

Leasing Co., 416 U.S. 663 (1974), where the

Supreme Court upheld against takings and due

process challenges a Puerto Rican statute providing

for the seizure and forfeiture of property used in

furtherance of crimes, even where the property

belonged to an innocent owner, id. at 680. Near the

end of the opinion, the Court mused:

fljt would be difficult to reject the

constitutional claim of an owner. . . who

proved not only that he was uninvolved in and

unaware of the wrongful activity, but also that

he had done all that reasonably could be

expected to prevent the proscribed use of his

property; for, in that circumstance, it would

be difficult to conclude that forfeiture served

legitimate purposes and was not unduly

oppressive.

Id. at 689-90 (footnote and internal citations

omitted).

This dicta has no bearing on the case at bar.

See Bennis, 516 U.S. at 450 (declining to follow this

very passage on the grounds that it was “obitur

dictum”). To begin, it references innocent owners who

17a

did not “voluntarily entrust[]”’ their property to

criminals. Id. at 690. Here, there is a strong

argument that AmeriSource did not “do all that

could be expected” to prevent the deprivation of its

property because it sold the drugs to Norfolk a few

days after the company’s principals had been

indicted. AmeriSource, 75 Fed. Cl. at 744. Moreover,

it is not clear whether the Court meant to suggest

that such a deprivation would implicate the Due

Process or the Takings Clause. Most importantly, the

dicta is phrased as a hypothetical; the Court has yet

to find such a plaintiff, and Bennis, decided two

decades later, indicates that it is unlikely to do so.

See Bennis, 516 U.S. at 450.

AmeriSource’s final refuge is Shelden_v.

United States, 7 F.3d 1022 (Fed. Cir. 1993). In

Shelden, this court concluded that an innocent

mortgage holder stated a takings claim after the

government foreclosed on the property following the

mortgagor's conviction for violating the Racketeer

Influenced and Corrupt Organizations Act, 18 U.S.C.

§ 1962. 7 F.3d at 1029-30. AmeriSource contends

that “Shelden was a case, like this one, involving a

takings claim by an innocent party whose property

was taken solely because of a criminal conviction of

an unrelated third party.” Aplt’s Br. at 14.

AmeriSource’s reliance on Shelden is misplaced. To

begin, Shelden was decided before Bennis. To the

extent that it purports to create any rules with

respect to innocent owners in the takings context, it

has plainly lacks force. Moreover, the Acadia court

explained in a footnote that “Shelden was limited to

an in personam criminal forfeiture following the

18a

criminal conviction of a third party, in which an

innocent owner-claimant sought to recover his

interest in the forfeited property.” Acadia, 458 F.3d

at 1333 n.1. Here, the government did not exercise

control over the pharmaceuticals vis-4-vis a in

personam criminal forfeiture; rather, it seized the

drugs as part of a criminal prosecution.

Il. CONCLUSION

It is unfair that any one citizen or small

group of citizens should have to bear alone the

burden of the administration of a justice system that

benefits us all. But the war memorials only a short

distance from the Federal Circuit courthouse remind

us that individuals have from time to time paid a

dearer price for liberties we all enjoy. While

AmeriSource’s core theory is a sensible policy

argument, it is just that, a policy argument that

has been considered and discarded in the relevant

precedents. Someday Congress may well pass a law

providing compensation for owners in AmeriSource’s

position. In the meantime, this case stands as a

“reminder that the Federal Constitution does not

prohibit everything that is intensely undesirable.”

Bennis, 516 U.S. at 454 (Thomas, J., concurring).

The judgment of the Court of Federal Claims is

therefore AFFIRMED.

AFFIRMED

19a

In the United States Court of Federal Claims

Case No. 04-610C

(Entered: March 23, 2007)

TO BE PUBLISHED

RAKE EEE EERERKEEKEREEREEREEKKE

AMERISOURCE CORPORATION, ”

Plaintiff, .

Vv. °

a

THE UNITED STATES OF AMERICA, *

Defendant. *

SOI ISIE ICICI IOI IR IAI IIR IO

Fifth Amendment Takings; Police Power; Retention of

Personal Property for Use as Evidence in Crimina!

Proceeding; Motion for Return of Property Under Fed.

R. Crim. P. 41(e)/(g). Reasonableness; Legality of

Governmental Actions Presumed.

Maurice R. Mitts, with whom was Carolyn M.

Plump, Philadelphia, PA, for Plaintiff.

Gerald M. Alexander (opening brief), Robert E.

Chandier (reply), with whom were Deborah A.

Bynum, David M. Cohen, and Peter D. Keisler,

Department of Justice, Washington, D.C., for

Defendant.

John M. Bergen, Law Clerk; Elizabeth Bradshau,

Intern.

20a

OPINION

BASKIR, Judge.

The present matter comes before us for the

_second time on the Government’s renewed motion to

dismiss. AmeriSource Corporation is a wholesale

distributor of pharmaceuticals whose products were

seized and retained as evidence in criminal proceedings

against third parties. The Plaintiff, which is not

implicated in the criminal activities of the third

parties, alleges a Fifth Amendment taking. It

demands just compensation in excess of $150,000, the

original value of the pharmaceuticals which have since

aged beyond their expiration date. Defendant contends

that the retention of the property falls within the

Government's police power and is, therefore, not

compensable under the takings doctrine.

Although we do not accept all of the

Governments arguments, we conclude that

AmeriSource’s claims are not compensable under

takings jurisprudence. We, therefore, GRANT

Defendant’s motion.

Factual Background

Although familiarity with the following facts is

‘not necessary for the resolution of the legal issues in

this case, we relate them in some detail to provide the

context in which the legal issues arise.

21a

Seizure of Pharmaceuticals

In early August 2000, AmeriSource entered into

a contract to sell Viagra, Xenical, and Propecia to

Norfolk Pharmacy (Norfolk) for $150,856.26. Plaintiff

delivered fully conforming shipments of the drugs to

Norfolk at the latter's principal place of business in

‘Weirton, West Virginia.

On July 27, 2000, immediately prior to entering

into this contract, Norfolk’s principals, Anita Yates

and Anton Pusztai, were indicted by a Federal grand

jury in Alabama. They were charged with conspiracy,

unlawful distribution of prescription pharmaceuticals,

dispensing misbranded pharmaceuticals, operating an

unregistered drug facility, and conspiracy to commit

money laundering.

On August 7, 2000, the United States executed

a search warrant of Norfolk’s facility in Weirton, West

Virginia. As part of its investigation, the United States

Attorney for the Middle District of Alabama seized a

large quantity of pharmaceuticals, including the

pharmaceuticals that had just been shipped by

AmeriSource. Norfolk had not tendered payment to

AmeriSource at the time of seizure. Norfolk has since

become defunct, with the outstanding AmeriSource

debt left unresolved.

Plaintiffs Rule 41{e) Motion

On October 2, 2000, AmeriSource filed a motion

in the United States District Court for the Middle

District of Alabama seeking an order requiring the

Government tc return the seized: pharmaceuticals to

22a

Amerisource. AmeriSource Corporation’s Motion for

Release of Property (Oct. 2, 2000); Def. App. 1-7.

Although it was not captioned as such, the court

treated AmeriSoutce’s request as a formal motion

under Rule 4l(e, of the Federal Rules cf Criminal

Procedure. The rule, which has since been renumber 2d

Rule 41(g) without substantive changes, provides the

following remedy to property owners in Plaintiffs

position:

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.

FED. R. CRIM. P. 41(g) (emphasis added).

In connection with its motion, Plaintiff argued

that the pharmaceuticals would soon expire and

become worthless. Motion for Release of Property; Def.

App. 2. The United States opposed AmeriSource’s

motion, claiming these pharmaceuticals were required

as evidence in the criminal trials of Ms. Yates and Mr.

Pusztai. See Government’s Response to AmeriSource

Corporation’s Motion for Release of Property (Oct. 17,

2000); Def. App. 14-19. Furthermore, the Government

assured the Court that it would complete the trial well

in advence of the expiration dates listed on the

23a

pharmaceuticals. Jd. at 18. The expiration dates were

in April and May of 2003, two and one-half years away

at that point in time.

In its reply brief, AmeriSource suggested the

Court could order the prosecution to retain a

representative sample of the pharmaceuticals for trial

and return the balance. See AmeriSource

Corporation’s Reply Regarding Motion for Release of

Property Dec. 20, 2000); Def. App. 20 (“The

government cannot retain per se legal property for

evidentiary purposes when its interests can be

adequately served by counting, weighing, testing,

photographing, photocopying or retaining a small

sample of the product.”) (citing MOORE’S FEDERAL

PRACTICE, § 641.21[5], 641-82). AmeriSource indicated

that both Ms. Yates and Mr. Pusztai consented to the

release of the property back to AmeriSource. Def. App.

21.

The district court permitted AmeriSource to

inspect the seized drugs in order to identify those

drugs it had shipped to Norfolk. Apparently the

search of the Norfolk business yielded drugs from

other sources, as well. Plaintiff identified several items

among the seized evidence that it had shipped to

Norfolk but could not identify the entire shipment. See

AmeriSource Corporation’s Report Regarding

Inspection of Property (Feb. 22, 2001) and

AmeriSource Corporation’s Response to Order (Mar. 8,

2001); Def. App. 24-29.

24a

On March 20, 2001, the United States filed a

supplemental response to the Plaintiffs motion,

rejecting the proposal to use only a representative

sample of the seized Pharmaceuticals. Government’s

Supplemental Response to AmeriSource Corporation’s

Motion for Release of Property (Mar. 21, 2001); Def.

App. 30-40. The prosecution’s 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. The Government also

reiterated that AmeriSource had failed to avail itself of

available civil remedies against Norfolk and its

principals. Jd. at 39-40.

Finally, on January 28, 2002, almost 18 months

after the Government first took custody of Plaintiffs

property, the magistrate judge issued a

recommendation that the district court deny the

Plaintiffs motion. Recommendation and Order,

Magistrate Judge Susan Russ Walker (Jan. 28, 2002);

Def. App. 41-46. AmeriSource failed to file any

objections to the magistrates recommendation.

Consequently, on February 11, 2002, the presiding

judge adopted the recommendation and denied the

Rule 41 (e) motion. Order, Case No. 00-109-N (Feb. 11,

2002); Def. App. 47. In the Discussion that follows, we

address in more detail the Rule 41 proceedings.

Criminal Trial and Subsequent Appeals

Ms. Yates and Mr. Pusztai were convicted in

June of 2002. Contrary to the Government’s position

in the litigation of the Rule 41 motion, prosecutors did

not use as evidence the drugs which had been

identified by AmeriSource. Notwithstanding the

25a

success of the prosecution, and the impending

expiration of the pharmaceuticals, the drugs were not

returned to AmeriSource. Instead, they were retained

for possible use in a retrial.

That precaution proved prescient. Ms. Yates

and Mr. Pusztai appealed their convictions to the

United States Court of Appeals for the Eleventh

Circuit. The appeals court found that Ms. Yates and

Mr. Pusztai had been denied their Sixth Amendment

rights when the district court permitted a prosecution

witness to testify by video teleconference. The

convictions were reversed and the cases remanded for a

new trial. Prosecutors filed a petition for rehearing.

The appeal was reargued and on February 13, 2006,

the full court upheld the panel’s decision. United

States v. Yates, 438 F.3d 1307 (11th Cir. 2006) (en

banc). The district court scheduled a new trial date for

the end of February 2007. In the interim, however,

both defendants changed their pleas to guilty,

apparently pursuant to plea agreements dismissing

certain charges. According to the public dockets for

those cases, Mr. Pusztai was sentenced November 27,

2006, to 60 months confinement. Ms. Yates was

sentenced to 49 months confinement on March 22,

2007, the day before the issuance of this Opinion.

Thus, the property at issue in this takings claim

was never used for tnal. AmeriSource's

Pharmaceuticals had expired in the midst of the

appeals and rehearings. Once expired, the Government

would not have released the property in any event.

Transcript of Oral Argument on Initial Motion to

Dismiss at 14.

26a

Alternative Remedies

As a final piece of background, we note that

AmeriSource did not place all its hopes in the return of

the property by the trial court or by the United States

Attorney. While unsuccessfully petitioning the trial

court in Alabama for the drugs, Plaintiff also brought a

civil action against Norfolk. On August 20, 2002, the

United States District Court for the Northern District

of West Virginia entered a default judgment against

Norfolk, and awarded AmeriSource damages in the

amount of $208,070.12 - $149,691.36 for the unpaid

invoices and the remainder in attorney fees and

interest. Compl. § 40; Def. App. 69. Apparently

AmeriSource has been unable to collect on this

judgment since Norfolk, which had ceased operations,

had no assets. Compl., | 41-42. Although well beyond

the scope of our case, there may be methods by which

Plaintiff could satisfy this judgment. We do not know

whether or to what extent Plaintiff has pursued this

course of action.

The fact that Plaintiff obtained a civil judgment

against Norfolk may well have divested Plaintiff of its

property interest in the pharmaceuticals, themselves.

If so, this would adversely affect the merits of

Plaintiffs takings case. A takings claim may be

maintained only by the lawful owner of the property

for which just compensation is sought. Aulston uv.

United States, 11 Cl. Ct. 58, 60 (1986), affd in part and

vacated in part, 823 F.2d 510, 513 (Fed. Cir. 1987).

27a

Procedural History

Plaintiff filed its complaint against the United

States in this Court on April 8, 2004. Defendant

initially filed a motion to dismiss Plaintiffs claim for

lack of jurisdiction and for failure to state a claim upon

which relief may be granted, pursuant to RCFC 12

(b)(1) and RCFC 12 (b)(6), respectively. The crux of the

Government’s argument in support of the motion was

that no taking occurred because the United States

acted pursuant to its police powers. On November 15,

2005, we denied the Defendant’s motion without

prejudice. AmeriSource Corp. v. United States, No. 04-

610C (Fed. Cl. Nov. i5, 2005) (“Order”).

In the wake of this ruling, the Plaintiff and

Defendant voluntarily suspended further proceedings

while exploring settlement with the assistance of an

ADR judge. The parties also did some informal

discovery in conjunction with these settlement efforts.

Ultimately, however, the parties submitted a joint

status report expressing the Government’s desire to

terminate settlement negotiations and renew its

motion to dismiss.

The Government supplemented its motion with

Rule 41 information that had not been presented when

its motion was first heard. On August 8, 2006, several

days after the Government filed its second motion to

dismiss, the Federal Circuit decided the case of Acadia

Technology, Inc. v. United States, 458 F.3d 1327 (Fed.

Cir. 2006). In its October 4, 2006, reply brief, the

Defendant argued this new authority in support of its

police power theory, and contended that the opinion

undermines the basis of our previous holding. We

28a

permitted the Plaintiff to file a surreply on October 24,

2006, in order to respond to the new authority and

counter the Government’s revised argument.

The Defendant's case for dismissal has evolved

significantly since the briefing of its initial motion,

most notably as a result of its belated familiarity with

the Rule 41 proceedings in district court. Indeed, this

rule of criminal procedure was never mentioned in the

Complaint or in the papers filed by the parties, and we

were unaware that any such proceedings had been

conducted. Counsel only had the most rudimentary

knowledge of the criminal proceedings and the formal

rulings on Plaintiffs request for relief. The first round

of briefing merely stated in general terms that the

district court denied Plaintiffs request for the

property. Counsel could offer no corroboration for its

representations. Only after the Court pressed this issue

during oral argument, did the Government promise to

enlighten the Court concerning the impact of the

independent adjudicatory process on Plaintiffs takings

theory. As a result, the Defendant filed an entirely new

motion with an 84-page appendix, including documents

and orders filed as part of the Rule 41 litigation, a

declaration by one of the prosecuting attorneys, and

other matters pertaining to civil remedies Plaintiffs

have allegedly neglected to pursue in district court.

The litigation of Defendant’s motion to dismiss

has progressed well beyond the Plaintiffs pleadings.

We, therefore, treat the Defendant’s motion as a

motion for summary judgment, as opposed to a motion

to dismiss for lack of subject matter jurisdiction or for

failure to state a claim upon which relief may be

granted. Under our Rules:

29a

If, on a motion asserting the defense numbered

(6) to dismiss for failure of the pleading to state

a claim upon which relief can be granted,

matters outside the pleading are presented to

and not excluded by the court, the motion shall

be treated as one for summary judgment and

disposed of as provided in RCFC 56, and all

parties shall be given reasonable opportunity to

present all material made pertinent to such a

motion by RCFC 56.

RCFC 12(b); see also Rotec Indus., Inc. V. Mitsubishi

Corp., 215 F.3d 1246, 1250 (Fed. Cir. 2000); Advanced

Cardiovascular Sys., Inc. V. Scimed Life Sys., Inc., 988

F.2d 1157, 1164 (Fed. Cir. 1993).

Accordingly, we apply the well known standards

of RCFC 56 to the exhibits accompanying Defendant’s

brief, most of which are court documents having purely

legal significance. Both parties in this case have been

afforded the opportunity to present facts and argument

pertinent to the Rule 41 question. See Transcript of

Status Conference (Apr. 26, 2006) at 20 (Court

identified issues for briefing and permitted the parties

to engage in limited discovery). We find the

supplemental briefing sufficiently informative and,

therefore, dispense with a second hearing on this

matter.

30a

Discussion

Just Compensation Under _ the Fifth

Amendment

The “takings clause” of the Fifth Amendment to

the United States Constitution provides: “nor shall

private property be taken for public use, without just

compensation.” U.S. CONST, amend. V, cl. 4. This

provision prevents the government from imposing

burdens on the property of individuals, when in

fairness, the public should bear the burden. Armstrong

v. United States, 364 U.S. 40, 49 (1960). The provision

does not prohibit the taking of private property or

governmental interference with property rights, but

rather guarantees compensation for property owners

when otherwise legitimate activities of the government

amount to a taking. Commonwealth Edison Co. V.

United States, 46 Fed. Cl. 29, 41 (2000) (quoting First

English Evangelical Lutheran Church of Glendale v.

Co. of Los Angeles, 482 U.S. 304, 315 (1987)).

Accordingly, takings claims are “founded upon the

Constitution” and give rise to our jurisdiction under

the Tucker Act. See 28 U.S.C. § 1491(a)(1); United

States v. Causby, 328 U.S. 256, 267 (1946).

Limits of the Police Power

| It is well settled that when the Government acts

pursuant to its police power, independent of Fifth

Amendment rights, in order to protect the general

health, safety and welfare of its citizens, no

compensable taking occurs. See Atlas Corp. v. United

States, 895 F.2d 745, 757-58 (Fed. Cir. 1990), cert.

denied, 498 U.S. 811 (1990). As this Court has held,

3la

property taken not to secure a public benefit but

rather to prevent public harm is not compensable

under the Fifth Amendment. Seay v. United States, 61

Fed. Cl. 32, 35 (2004); see also, Scope Enterprises, Ltd.

v. United States, 18 Cl. Ct. 875, 883 (1989) (No

compensable taking where Government acted to

prevent illegal exportation of classified military

equipment). In the present case, the Defendant argued

that whenever it seizes and retains property intended

for use as evidence in a criminal prosecution, no other

showing is necessary for this to constitute a

noncompensable exercise of police power. Accordingly,

the Government contends its retention of the

Plaintiffs pharmaceuticals did not violate the

Plaintiffs Fifth Amendment rights.

While we, of course, recognize the relationship of

the police power and takings, we were not prepared to

accept uncritically the Government’s bare assertions at

the initial stages of this litigation, especially given the

procedural posture of the case. See Sommers Oil Co. v.

United States, 241 F.3d 1375, 1378 (Fed. Cir. 2001) (On

Rule 12(b)(6) motion, Court “must accept as true all

factual allegations in the complaint . . . [and] indulge

all reasonable inferences in favor of the non-movant.”).

Thus we invited Defendant’s second effort. See Order

(Nov. 15, 2005) (denying Defendant’s Rule 12 motions

without prejudice); Joint Status Report (Mar. 24, 2006)

‘(Defendant requests opportunity “to provide the Court

sufficient factual and legal detail to allow the Court to

rule conclusively with regard to its jurisdiction in this

matter”). Defendant has made full use of that

opportunity. The case is now in a different procedural

and factual posture than it was with the original

motion. While the Government asks that we reconsider

32a

our prior ruling, we see no reason to turn the clock

back. We will decide the case on the present record.

Effect of Rule 41(e) Motion on Takings Claim

The details of the Rule 41(e) litigation are

recounted both because they are interesting in

themselves, and because they shed light on the

position taken by the parties in the present litigation.

These details do not, however, control in resolving the

Governments motion. Disputes as to the facts

underlying the district court proceedings are of no

significance for us.

As we have previously indicated, AmeriSource

filed a motion in the district court requesting return of

the pharmaceuticals it had shipped to Norfolk that the

Government seized. After coordinating with the

prosecuting attorneys for the Yates/Putsztai trial, the

company itemized the following pharmaceuticals: (1)

667 bottles of 100 mg. Viagra and 25 bottles of 50 mg.

Viagra; (2) 24 bottles of 120 mg. Xenical; and (3) 10

boxes of 1 mg. Propecia. Recommendation of the

Magistrate Judge (Jan. 28, 2002); Def. App. 41.

AmeriSource’s pharmaceuticals represented only a

portion of the total amount of evidence seized.

Apparently, a wide variety of medication from a

number of distributors had been shipped to Norfolk. At

a hearing held on February 15, 2001, it “became clear .

.. that neither AmeriSource nor the government knew

exactly which medications shipped by AmeriSource to

Norfolk were actually in the possession of the

government and claimed by AmeriSource.” Id. at 42. A

period of inspections and responsive pleadings

followed. Finally, one week before the criminal trial

33a

commenced, the magistrate judge issued her formal

recommendation.

The magistrate judge found that Plaintiff was

not entitled to return of the evidence for several

reasons. First, AmeriSource could not conclusively

establish ownership for a large portion of the

pharmaceuticals outlined in its request. Jd. at 41.

Second, the expiration date for the items which could

actually be linked to AmeriSource would not occur

until Spring 2003, over a year after the trial date.

Because the pharmaceuticals were apparently being

maintained at the proper temperature while in the

government's custody, the magistrate reasoned

AmeriSource had failed to establish that it will be

irreparably harmed by government retention of the

property for possible use at trial. Def. App. 44-45. And,

finally, the magistrate found that AmeriSource had

not demonstrated that it lacked an adequate remedy

at law. Def. App. 45. This last ground for denial

implies that AmeriSource could pursue a civil

judgment against the company or its principals for

non-payment. In fact, Plaintiff had just filed a breach

of contract action against Norfolk two weeks prior to

the magistrate’s recommendation. It did not obtain a

judgment until August of that same year.

The Order issued by the magistrate advised the

parties to file any objections to her proposed findings

and recommendation prior to January 30, 2002, and

further warned that failure to file objections would bar

de novo review of those issues by the district court.

Def. App. 46. AmeriSource did not file any objections,

and the district court subsequently adopted the

magistrate’s findings and denied the Rule 41 (e) motion

34a

in a one-paragraph order. See Order (Feb. 11, 2002);

Def. App. 47.

At some point very close to the time of the

magistrate judge’s resolution of the Rule 41 motion

(the exhibit list for trial was due on January 25, 2002),

the prosecutors decided “to narrow [their] focus,” and -

opted not to present all of the pharmaceuticals that

had been retained. The property identified as belonging

to AmeriSource was not used at all. See Hardwick

Decl., 7 9-13. Of course, we are in no better position

than was the district court to second guess the

prosecutors’ ability to prepare for possible exigencies of

proof and to present the Government’s case in the

manner of their choosing. The fact the body of evidence

was pared down on the eve of trial in no way affects the

legitimacy of the Rule 41 process.

Reasonable Exercise of Police Power

Because an aggrieved property owner has at his

disposal the Rule 41 procedure itself, the Government’s

actions do not give rise to a compensable taking. We do

not sit as a reviewing court to evaluate the procedures

or findings of a Rule 41 proceeding. Joshua uv. United

States; [sic] 17 F.3d 378 (1994) (“[T]he Court of

Federal Claims does not have jurisdiction to review

the decisions of district courts or the clerks of district

courts relating to proceedings before those courts.”);

Cf. Verada, Lid. v. United States, 271 F.3d 1367, 1375

(Fed. Cir. 2001) (Tucker Act jurisdiction over in rem

forfeiture preempted due to specific and

comprehensive statutory scheme for administrative

and judicial review carried out under the auspices of

the district courts); Hammuiit v. United States, 69 Fed.

35a

Cl. 165 (2005) (same), affd, No. 2006-5062, 2006 WL

3779499 (Fed. Cir. Dec. 26, 2006); see also, Carranza v.

United States, 67 Fed. Cl. 106, 112 (2005) (alternative

holding in Rule 41(g) context follows Vereda). We

simply consider the entire process -- including the

Government’s justifications for maintaining custody of

the property and the magistrate’s recommended

disposition of Plaintiffs motion for its return -- in order

to determine, as an objective matter, whether the

alleged deprivation is aimed at obtaining a public use

or benefit, or whether it furthers a police function. As

we stated above, this distinction defines the line

between compensable and noncompensable

governmental action.

A judicial endorsement of the Government’s

retention of property as evidence demonstrates to us

that there has been a reasonable exercise of the

Government's police power. The Rule 41 proceedings

make it clear that the Government does not seek to

convert Plaintiffs property for public use but rather to

temporarily retain the property in order to perfect a

case against those who intended to use the property in

the furtherance of a criminal enterprise. A portion of

the pharmaceuticals remained in their original

packaging and reasonable measures were apparently

taken to preserve them. The magistrate expressly

invited AmeriSource to file objections to its findings,

yet none were entered.

In light of the Rule 41 process, the Government

was incorrect in suggesting that its police power is

unlimited and not subject to a standard of

reasonableness. See Wilson v. United States, 540 F.2d

1100, 1103-04 (D.C. Cir. 1976) (Discussing duty of the

36a

trial court to ensure the return of property seized

during an investigation once it is no longer needed for

evidentiary purposes); Kessler v. United States, 3 Cl.

Ct. 123 (1983) (same); see also, Goldblatt v. Town of

Hempstead, 369 U.S. 590, 594-95 (1962) (exercise of

police power must be necessary to protect the public

interest and not unduly oppressive to the property

owner) (citing Lawton v. Steele, 152 U.S. 133, 137

(1894)).

In fact, the Federal Rules Advisory Committee

notes concerning the 1989 amendments to Rule 41

illustrate that reasonableness is built into this scheme:

If the United States has a need for the property

in an investigation or prosecution, its retention

of the property generally is reasonable. But, if

the United States’ legitimate interests can be

satisfied even if the property is returned,

continued retention of the property would

become unreasonable.

Fed. R. Crim. P. 41(g) (Advisory Committee Notes,

1989 Amendments).

Defendant insists the Government’s action here

was plainly an exercise of police power. In fact, other

takings cases in which Rule 41 proceedings had been

involved at the district court level do not lend support

to the assertion. Where evidence is retained for use at

trial, as opposed to being set aside for destruction or

forfeiture, judges of this Court have dismissed takings

claims on alternative grounds, without reaching the

question of whether the police power doctrine barred

relief. See Carranza, 67 Fed. Cl. at 110-12 (held

37a

takings claim barred under res judicata due to district

courts adverse ruling on Rule 41 (g) motion); Carter v.

United States, 62 Fed. Cl. 365, 369-70 (2004) (takings

claim stayed while portion of claim that had not yet

been subject to Rule 41 adjudication transferred to

district court); Duszak v. United States, 58 Fed. Cl.

518, 520-21 (2003) (takings claim dismissed on

ripeness).

A number of Article [II courts have also

suggested that a takings claim would lie under some

circumstances to compensate the owner for the value

of the property. See e.g., United States v. Hall, 269 F.3d

940 (8tb Cir. 2001) (Citing Tucker Act, court noted that

“{a] cause of action may accrue under one or more of

those statutes when the government discloses that it

has lost, destroyed, or transferred property that would

otherwise be subject to a Rule 41(e) order to return.”);

see also, Lowther v. United States, 480 F.2d 1031 (10%

Cir. 1973) (taking without due process for

unauthorized forfeiture). Moreover, certain district

courts have rested on their concurrent Tucker Act

jurisdiction in compensating owners for the lost, value

of their property. See United States v. One 1961 Red

Chevrolet Impala Sedan, 457 F.2d 1353, 1356-57 (5%

Cir. 1972) (Rule providing for relief from judgment did

not give district court authority to compensate claimant

for improperly forfeited property; appropriate remedy

is under Little Tucker Act); United States v. One 1965

Chevrolet Impala Convertible, 475 F.2d 882, 886 (6%

Cir. 1973) (in the event of vacated forfeiture,

depreciation of property compensable under Little

Tucker Act); but see, United States v. One 1979

Cadillac Coupe de Ville, 833 F.2d 994, 999 (Fed. Cir.

1987) (forfeiture statue provides only for return of

38a

property; vehicle’s depreciation in value during period

of government custody not compensable taking).

Defendant provided little authority on the

Government's taking of property strictly for its

evidentiary value. The Government focuses on

property seized as a result of its illicit nature or its

illegai use. This distinction cannot be so cavalierly

disregarded. The Defendant has cited to clear

examples — seizures of contraband, property subject to

forfeiture, or property which poses a serious public

threat — where the police power trumps an owner's

property interests. In each of these areas, there is

ample precedent establishing that the Government

acts pursuant to its police power, and not to secure

property for a public use. See e.g., Bennis v. Michigan,

516 U.S. 442, 446 (1996) (property interest in

automobile may be forfeited by reason of use to which

property is put, even where owner was unaware of

illicit use); Calero-Toledo v. Pearson Yacht Leasing Co.,

416 U.S. 663, 668 (1974) (unknowing owner's interest

in yacht forfeited as a result of lessee’s possession of

narcotics); see also, Atlas Corp., 895 F.2d at 757-58 and

B&F Trawlers, Inc. v. United States, 27 Fed. Cl. 299,

304-05 (1992) (relying on public safety rationale).

The Defendant's incorporation of the Acadia

decision in its reply brief is merely the most recent

instance in which the Government's police power is

manifest. As the Court of Appeals observed in that

case, “[a] Customs seizure of goods suspected of

bearing counterfeit marks is a classic example of the

government's exercise of police power to condemn

contraband or noxious goods.” Acadia, 458 F.3d at

1332. The Defendant brings that case to our attention

39a

for the obvious and unremarkable conclusion that a

takings claimant must concede the lawfulness of the

Government’s initial seizure and continued possession

of the property. The Court of Appeals found that the

takings claim alleging improper seizure and

subsequent unreasonable delay in initiating forfeiture

proceedings, fails in that it is predicated upon

unlawful government conduct. Id., at 1332-34; See

Tabb Lakes, Ltd. v. United States, 10 F.3d 796, 802-03

(Fed. Cir. 1993) (‘claimant must concede the validity of

the government action which is the basis of the taking

claim”) (citing Florida Rock Indus v. United States,

791 F.2d 893, 899 (Fed. Cir. 1986), cert. denied, 479

U.S. 1053 (1987)). AmeriSource has made no such

challenges. See Plaintiffs Response at 14 (“We readily

acknowledge, and support, the Government’s need to

Retain AmeriSource’s product as reasonably necessary

to th[e] prosecution.”)

The most analogous case found in the

Defendant’s briefs is Interstate Cigar Co. v. United

States, 32 Fed. Cl. 66 (1994). In that case, this Court

held against a plaintiff seeking compensation under a

takings theory for prescription drugs labeled for export

only and being diverted to the domestic market. Id. at

67. The drugs were seized by United States Customs

Service officials and subsequently retained beyond

their expiration date while an investigation continued.

Judge Hodges rejected the takings claim under the

police power doctrine, finding that the prescription

pharmaceuticals were retained in order to “curb the

illegal operation of a diversion market for prescription

drugs.” Id. at 70. The Court also found that the

Government’s actions were based on the belief that the

drugs presented a “serious threat to public health” and

40a

could no longer be legally sold on the domestic market.

Id.

This rationale does not wholly apply in the

present case — the Government has conceded that its

custody of AmeriSource’s pharmaceuticals was not

predicated on public safety grounds. Despite the

distinction, we found Interstate Cigar helpful in that it

confirmed that Plaintiffs claims should not be

dismissed based solely on the pleadings. To the

contrary, that decision — which resulted from a trial,

not a hearing on a Rule 12 motion — demonstrated the

careful balance struck between just compensation

under the Fifth Amendment and the Government’s

police powers.

Therefore, merely invoking the police power

without providing any context for the Government's

actions does not suffice. Both Interstate Cigar and

Defendant’s newly cited authority support our original

view that the police power is not necessarily absolute:

While it is insufficient to avoid the burdens

imposed by the Takings Clause simply to invoke

the “police powers” of the state, regardless of the

respective benefits to the public and burdens on

the property owner, the prohibition on importing

goods bearing counterfeit marks that

misrepresent their quality and safety is the

kind of exercise of the police power that has

repeatedly been treated as legitimate even in

the absence of compensation to the owners of

the imported property.

Acadia, 458 F.3d at 1332-33 (emphasis added).

Ala

In RCFC 12(b)6) parlance, we could not

conclude based on the pleadings alone that the Plaintiff

could prove no set of facts entitling it to relief. See

Order (Nov. 15, 2005) (“public safety purpose [here]

cannot be inferred from the pleadings.”); King v.

United States, 221 Ct. Cl. 838, 840-41 (1979) (Supplied

with “sketchy information” Court denied motion to

dismiss without prejudice: “It may well be...

defendant will be able to prevail on summary

judgment, but we think it should at least come into

court and show from its records what it did.”). The Rule

41 procedure subsumes the inquiry. In the second

round of briefing, Defendant defined the authority

under which its agents acted and the process by which

the district court endorsed the Government’s actions.

Once the government survives this inquiry, that is the

end of the takings analysis in our review.

We, therefore, conclude that the police power

rationale does apply in this context just as it would in

the long line of forfeiture cases. The 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 traditionaily

accepted exercise of the police power. Accordingly, it is

by definition not a compensable taking. See Acadia,

458 F.3d at 1331 (enforcement of Tariff Act not “public

use” of property for which Takings Clause requires

compensation); see also, Bibb v. Navajo Freight Lines,

359 U.S. 520, 529 (1959) (exercise of police power is

presumed to be constitutionally valid). To the extent

the property owner challenges the scope of the

government's interference with his mghts, he must

seek a remedy independent of the Fifth Amendment.

The present version of Rule 41(g) affords a remedy

42a

against governmental abuse in holding seized property

unreasonably. See Acadia, 458 F.3d at 1333 (“the

courts have recognized a right not to have property

held . . . for an unreasonable time and have crafted a

remedy to vindicate that right.”).

Conclusion

Although it only became clear once the

Government filled in the gaps of information, the

observance of Rule 41(g) procedures in this case

confirms our view that the Government acted in

accordance with its police powers. Under these

circumstances, it was entirely legitimate for the

Government to retain custody over the Plaintiffs

pharmaceuticals. We agree with the Defendant that

the takings clause of the Fifth Amendment provides no

compensation and that the Government is entitled to

judgment as a matter of law.

Defendant’s motion is hereby GRANTED.

The Clerk of Court shall dismiss the Complaint

filed in this case and enter judgment in favor of

the Defendant.

IT IS SO ORDERED.

/s/ Lawrence M. Basker

LAWRENCE M. BASKIR

Judge

43a

UNITED STATES COURT OF APPEALS FOR

THE FEDERAL CIRCUIT

ENTERED: JULY 21, 2008

2007-5121

AMERISOURCE CORPORATION,

Plaintiff-Appellant,

V.

UNITED STATES,

Defendant-Appellee.

Appeal from the United States Court of Federal

Claims in 04-CV-610, Judge Lawrence M. Baskir.

ORDER

UNITED STATES COURT OF APPEALS FOR

THE FEDERAL CIRCUIT

ORDER

A combined petition for panel rehearing and for

rehearing en banc having been filed by the Appellant,

and the petition for rehearing, having been referred to

the panel that heard the appeal, and thereafter the

petition for rehearing en banc having been referred to

the circuit judges who are in regular active service,

44a

UPON CONSIDERATION THEREOF, it is

ORDERED that the petition for panel rehearing

be, and the same hereby is, DENIED and it is further

ORDERED that the petition for rehearing en

banc be, and the same hereby is, DENIED.

The mandate of the court will issue on July 28,

2008.

FOR THE COURT,

/s/ Jan Horbaly

Jan Horbaly

Clerk

Dated: 07/21/2008

CC: Maurice R. Mitts

Robert E. Chandler

AMERISOURCE CORP \V. US, 2007-5121

(CFC-04-CV-610)

45a

United States Court of Appeals for the

Federal Circuit

ENTERED: MAY 1, 2008

2007-5121

AMERISOURCE CORPORATION,

Plaintiff-Appellant,

Vv.

UNITED STATES,

Defendant-Appellee.

Judgment

ON APPEAL from the United States Court of

Federal Claims in CASE NO(S). 04-CV-610.

This CAUSE having been heard and considered, it is

ORDERED and ADJUDGED:

AFFIRMED

ENTERED BY ORDER OF THE COURT

/s/ Jan Horbaly

Jan Horbaly, Clerk

DATED May 01 2008

ISSUED AS A MANDATE: JUL 28 2008

46a

Reprinted from Court of Appeals Appendix A174

1. PRICE. Prices are subject to change by Seller

without notice. Increases in labor, freight and

material cost before completion of contract plus

applicable overhead may be invoiced to Buyer.

Premium time as required by Buyer will be invoiced

as an extra item.

2. DELIVERY OR PERFORMANCE. Unless

otherwise specified on the face hereof, all deliveries

made via common carrier are FOB point of

shipment. Shipment will be made in accordance

with Seller’s instructions. Upon delivery of goods to

carrier, Buyer assumes risk of all loss and damage

resulting from any cause whatsoever. Shipping,

delivery or performance dates are approximate and

are not guaranteed.

3. FORCE MAJEURE. Seller shall not be liable

for delay or other failure of performance due to cause

beyond its reasonable control including without

limitation acts of God, acts of Buyer, acts of military

or authorities, fire or other casualty, strikes,

lockouts, weather, epidemic, war, riot, delays in

transportation or car shortages, or inability to obtain

necessary labor, materials, components, equipment,

services, energy or utilities through Seller’s usual

and regular sources at usual and regular prices. In

any such event Seller may at any time without

further liability to Buyer, (a) postpone performance

under this contract; (b) make partial performance or

cancel all or any portion of this contract; or (c)

allocate available quantities among its customers in

any manner which Seller deems reasonable.

47a

Cancellation of any part of this contract shall not

affect Buyer’s duty to pay for performance of any

other part thereof. |

4. WARRANTY AND REMEDY. Unless

otherwise expressly stated on the face thereof, Seller

warrants to Buyer for a period of twelve months

from the date of shipment and/or performance of

services, that its services hereunder are performed

in a good and workmanlike manner and that goods

delivered hereunder are free from defect in materials

and workmanship, except that goods and materials

furnished by Seller’s suppliers or subcontractors are

warranted by Seller only to the extent of the

suppliers or subcontractor’s express warranty to

Seller. If during such period Buyer promptly notifies

Seller in writing of any breach such warranty and

complies with any applicable warranty procedures of

Seller, Seller shall, at Seller's option, reperform

services, repair or replace any defective goods at

Seller's plant (Buyer to pay all transportation

charges) or refund the price of the goods or services

or part thereof which gives rise to the claim. Seller

shall make no allowance for repairs or alterations

made by Buyer, unless made with Seller’s prior

written consent. The foregoing shall constitute the

sole and exclusive remedy of Buyer and the full

liability of Seller for any breach of warranty. THE

FOREGOING IS EXCLUSIVE AND IN LIEU OF

ALL OTHER WARRANTIES, WHETHER

WRITTEN, ORAL OR IMPLIED, INCLUDING ANY

WARRANTY OF PERFORMANCE,

MERCHANTABILITY OR FITNESS FOR

PURPOSE AND SUPERSEDES AND EXCLUDES

ANY ORAL WARRANTIES OR

48a

REPRESENTATIONS, OR WRITTEN

WARRANTIES OR REPRESENTATIONS, NOT

EXPRESSLY DESIGNATED IN WRITING AS A

“WARRANTY” OR “GUARANTEE” OF SELLER,

MADE OR IMPLIED IN ANY MANUAL,

LITERATURE, ADVERTISING BROCHURE OR

OTHER MATERIALS.

5. LIMITATION OF SELLER'S LIABILITY.

Seller’s liability on any claim of any kind including

negligence, with respect to the goods or services

covered hereunder, shall in no case exceed the price

of the goods or services or part therefor which gives

rise to the claim. IN NO EVENT SHALL SELLER

BE LIABLE FOR SPECIAL, JNCIDENTAL OR

CONSEQUENTIAL DAMAGES, OR FOR

DAMAGES IN THE NATURE OF PENALTIES.

6. LIMITATION OF ACTIONS. Any action for

any loss or damage with respect to the goods or

services covered hereunder must be commenced by

Buyer within six months after Buyer’s cause of

action has accrued.

A INDEMNIFICATION AND WAIVER. Buyer

shall defend, indemnify and hold harmless Seller

from any loss or damage sustained directly by Seller

and from and against all claims asserted against

Seller with respect to the goods or services covered

hereunder arising in whole or in part out of (a) failure

of Buyer, its agents, employees or customers to follow

specifications, instructions, warnings or

recommendations furnished by Seller, (b) failure of

Buyer, its agents, employees or customers to comply

with all applicable legal requirements, including the

49a

Occupational Safety and Health Act of 1970, (c)

misuse of the goods by Buyer, its agents, employees

or customers, (d) misrepresentation by Buyer, its

agents, employees or customers, (e) the sole or

contributing negligence of Buyer, its agents,

employees, or customers, or (f) alleged infringement of

any patent, trademark or copyright as a result of

Sellers performance in accordance with Buyer's

designs, plans or specifications. Buyer hereby waives

and releases Seller from all rights of contribution or

indemnity to which it may otherwise be entitled. As

used in this paragraph, the term “Seller” shall mean

Seller, its officers, directors, agents, employees,

subcontractors, parent, subsidiaries, divisions and

affiliates. ;

8. CANCELLATION BY BUYER. Buyer may

cancel this contract only upon written notice to

Seller and payment of reasonable cancellation

charges including (1) the price of goods and services

completed prior to Selier’s receipt of such notice; (2)

all costs previously incurred in connection with sale

and delivery of goods or services together with

reasonable profit thereon; and (3) the expenses

incurred by Seller by reason of such cancellation.

9. TAXES. All taxes and other charges imposed

by federal, state, local or foreign governments on the

manufacture, sale, shipment, import, export or use of

the goods or services (other than income taxes) shall

be paid by Buyer. Buyer shall defend, indemnify

and hold harmless Seller from and against all

liabilities for such taxes or charges and attorney fees

or costs incurred by Seller in connection therewith.

50a

10. ADVICE AND ASSISTANCE. Upon request,

Seller in its discretion may furnish as an

accommodation to Buyer technical advice or

assistance regarding the goods or services. Seller

assumes no obligation or liability for the advice or

assistance given or results obtained, which shall be

at Buyer’s sole risk.

11. SELLER'S PROPRIETARY RIGHTS. All

drawings, software programs, inventions. or

improvements made by or for Seller in connection

with the performance of this contract shall remain

Seller’s property. Buyer shall not reproduce or

transfer any such proprietary property, any drawing

or software program furnished by Seller. Buyer

shall not use or disclose any of Seller’s trade secrets

or confidential information, whether or not

designated as such, except as required in connection

with the use of the goods or services covered

hereunder.

12. SECURITY AGREEMENT; CREDIT AND

COLLECTION. To secure payment of all sums due

Seller hereunder or otherwise, Seller shall retain a

security interest in the goods delivered hereunder

and this contract shall be deemed a Security

Agreement under the Uniform Commercial Code.

Buyer authorizes Seller as its attorney to execute

and file on Buyer’s behalf all documents Seller

deems necessary to perfect such security interest.

Seller is relying upon Buyer’s representation of

solvency and if Seller at any time reasonably

believes that Buyer is insolvent or that Buyer’s

credit is impaired, Buyer shall be in material breach

hereof and Seller may, without liability to Buyer,

5la

withhold performance hereunder, change the

payment terms and/or repossess goods theretofore

delivered. Title to the goods covered hereby shall

remain in Seller until full payment is received.

Seller may charge Buyer finance, service, or late

charges in an amount not greater than allowed by

law, and if Buyer fails to make payment when due,

Buyer shall be liable to Seller for al! costs of

collection including attorney’s fees.

13. GENERIC SUBSTITUTIONS. Buyer agrees

that in certain situations Seller is authorized to

substitute one generic manufacturer’s product for

the equivalent product of another generic

manufacturer without prior notice to Buyer.

14. RETURNS. Buyer agrees that any products

that are returned will be handled in accordance with

the Prescription Drug Marketing Act and Seller's.

Returned Goods procedures.

15. CLAIMS. All claims by Buyer for overcharges,

shortages, breakage, misshipments and/or misorders

shall be reported to Seller promptly and in

compliance with Seller’s procedures.

16. ALLOWANCES AND DISCOUNTS. The

price identified for the goods invoiced on the reverse

may not reflect all allowances and discounts given on

those goods. Allowances and discounts must be

accurately reported by Buyer to federal, state and

private reimburses in accordance with all applicable

laws.

52a

17. MISCELLANEOUS. This contract constitutes

the entire agreement between Buyer and Seller

relating to the goods or services covered hereunder.

No modification shall be binding upon the Seller

unless in a writing signed by Seller’s duly authorized

representative. No waiver by Seller of default by

Buyer shall be deemed a waiver of any subsequent

default. Captions used herein shall have no

substantive significance.

EQUAL OPPORTUNITY CLAUSE Seller shall not

maintain segregated facilities or discriminate

against any employee or employment applicant

because of age, race, color, religion, sex, sexual

orientation, national origin, disability, or on any

other ground prohibited by law. Seller shall take

affirmative action to ensure that applicants are

employed, and that employees are treated during

employment without regard to age, race, color,

religion, sex, sexual orientation, national origin or

disability. Such action shall include employment,

upgrading, demotion, or transfer; recruitment or

recruitment advertising; layoff or termination; pay

or other forms of compensation; and training,

including apprenticeship. Seller shall post in

conspicuous places available to employees and

employment applicants, notices setting forth the

provisions of this Clause. Seller certifies that it does

and will comply with, and there are incorporated

herein by reference all provisions of Executive Order

11246, as amended, The Vietnam Era Veterans

Readjustment Act, The Rehabilitation Act, The

Americans With Disabilities Act, all other equal

opportunity laws and Executive Orders and of the

rules, regulations and orders of the Secretary of

53a

Labor. This clause is hereby incorporated in every

non-exempt contract between Seller and Buyer, and

shall be contained in each non-exempt contract

between Seller and its subcontractors.