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Dr. Fink is professor of pharmacy law and policy at the University of Kentucky College of Pharmacy, Lexington.
Issue of the Case
When the federal government has seized a sizable quantity of prescription medications for possible use as evidence in a criminal proceeding and the drug products pass their expiration dates, does the government have a legal obligation to compensate the wholesaler who still had ownership of the products for the loss?
Facts of the Case
A major national pharmaceutical wholesaler agreed to sell >$150,000 worth of 3 federal legend medications to a pharmacy. The drug products were delivered to the headquarters of the firm and shortly after they arrived were seized by federal agents as part of an investigation of criminal activity by the 2 principals in the business enterprise. Allegations included "conspiracy, unlawful distribution of prescription pharmaceuticals, operating an unregistered drug facility, and conspiring to commit money laundering." The pharmacy did not pay for the drug products, so ownership remained with the wholesaler.
The government held the medications for possible use as evidence at the trials of the business owners, so the wholesaler petitioned to have its property returned. This request was denied by the federal trial court.
Ultimately, the medications were held so long that the expiration dates on the products came and went, reducing their value to zero.
The wholesaler attempted to recover the value of the products from the pharmacy owners, securing a default judgment against them that was never paid. The distributor then turned to the Court of Federal Claims in Washington, DC, where such claims for compensation against the federal government are considered.
The wholesaler filed suit against the federal government using as its basic argument a provision in the Fifth Amendment of the US Constitution known as the "Takings Clause." The relevant provision of that amendment provides that "...nor shall private property be taken for public use without just compensation." Most people are familiar with this provision from its application when private land is taken to construct a public highway or dam.
The wording of the amendment requires that the owner of the property receive "just" compensation. It should be noted that "just" compensation in such situations is not the same as fair market value, with the latter usually being substantially higher.
The Court's Ruling
The court ruled that the government's action in holding the medications beyond their expiration dates did not equate to a "taking" as that word is used in the Fifth Amendment. Consequently, the wholesaler was not due any compensation from the government.
The Court's Reasoning
The court focused on rulings in prior cases that consistently adopted the approach that "items properly seized by the government under its police power are not seized for 'public use' within the meaning of the Fifth Amendment." The phrase police power refers to the authority of government to adopt laws related to public health, safety, or welfare.
In this instance, the property was seized as part of governmental activity directed at enforcement of criminal laws, something that falls clearly within government's police power. In the view of the court, this meant the Fifth Amendment argument advanced by the wholesaler was not applicable. Moreover, the court continued on to emphasize that this is so, irrespective of whether the owner of the property is innocent, as here, or guilty.
It is difficult to surpass the court's eloquence in describing the rationale underlying this decision: "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 courthouse remind us that individuals have from time to time paid a dearer price for liberties we all enjoy. While the wholesaler'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 the wholesaler's position. In the meantime, this case stands as a reminder that the federal Constitution does not prohibit everything that is intensely undesirable."