Opinion
Civil No. 98-2400 (JRT/FLN)
March 31, 2002
Gerald C. Kell, Senior Trial Counsel, Office of Consumer Litigation, UNITED STATES DEPARTMENT OF JUSTICE, Washington, DC 20004, and Mary Jo Madigan, Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Minneapolis, MN 55415, for plaintiff.
Frederick H. Branding and James M. Ellis, BELL BOYD LLOYD LLC, Chicago, IL 60602, and Richard J. Wegener and Kari L. Wraspir, OPPENHEIMER WOLFF DONELLY LLP, Minneapolis, MN 55402, for claimant.
MEMORANDUM OPINION AND ORDER ADOPTING REPORT AND RECOMMENDATION
This action is an in rem proceeding brought by plaintiff the United States of America ("the government") pursuant to 21 U.S.C. § 334. The products at issue in this action include tanning accelerators, sunscreen products, and the raw materials for making such products. Claimant Creative Labs ("Creative") seeks leave to withdraw its claims to the articles of drugs that are currently held under seizure by the government. This matter is now before the Court on the government's objections to the Report and Recommendation of United States Magistrate Judge Franklin L. Noel dated November 28, 2001. The Court has conducted a de novo review of the government s objections pursuant to 28 U.S.C. § 636 (b)(1)(C) and D. Minn. LR 72.1(c)(2). For the reasons set forth below, the Court adopts the Report and Recommendation of the Magistrate Judge, and grants Creative's motion.
BACKGROUND
On January 11, 1993, the Food and Drug Administration ("FDA") informed Creative that its tanning accelerator products were considered drugs within the meaning of 21 U.S.C. § 321 (g). Creative initially stopped producing these products, but resumed production after observing that its competitors were marketing very similar products without interference by the FDA. On November 6, 1998, the government filed a Complaint for Forfeiture against the subject articles, and the United States Marshal seized the articles and placed them under the jurisdiction of this Court. On December 3, 1998, Creative filed a Claim to the seized articles.
On February 12, 1999, the government filed an Amended Complaint, alleging that certain products containing the drug L-Tyrosine were non-approved "new drugs," the compositions of which were not generally recognized as safe and effective for use under the conditions suggested by the labeling. The Amended Complaint also alleged that the L-Tyrosine-containing products had not been approved as required by 21 U.S.C. § 355 (b), and that the products were misbranded under 21 U.S.C. § 352 (f)(1) because their labels did not contain adequate directions for use. Finally, the Amended Complaint alleged that the products were "adulterated" under 21 U.S.C. § 351 (a)(2)(B), because they were not manufactured in conformity with good manufacturing practices.
On July 24, 2001, Creative filed the present Motion to Withdraw its Claim and Answer, and seeking entry of a Default Decree of Condemnation and Destruction, by which the products at issue would be destroyed. On August 31, 2001, the government gave notice of its intent to file a motion for summary judgment. The deadline for dispositive motions in this case was September 1, 2001.
ANALYSIS
The government now objects to the Magistrate Judge's determination that "for all practical purposes, this case is now finished, and the preparation and entry of a decree of condemnation would seem appropriate." The Magistrate Judge found that both parties agree to the condemnation and destruction of the drugs, and that Creative's proposed Decree provides the government with all of the relief requested in its complaint. Specifically, the government makes these objections: (1) the Magistrate Judge was wrong in failing to rule on whether the government is entitled to a judgment with res judicata effect; and (2) permitting Creative to withdraw its Claim and Answer will be unfair to the government.
I. Entitlement to Res Judicata Judgment
The government's first objection is that permitting Creative to withdraw will deny the government a judgment that has a res judicata effect against Creative. In recommending that Creative's motion be granted, the Magistrate Judge stated that he declined to express "an opinion on the merits of the Government's assertion that entry of the proposed Default Decree deprives the government of a judgment with a res judicata effect against Creative."
The government cites several cases that discuss the res judicata affect of judgments, but it points to no authority holding that the government is entitled to a judgment with such an effect. First, the government cites United States v. Various Articles of Device . . ., 814 F. Supp. 31 (E.D. Tenn. 1992) and the unpublished, oral opinion in United States v. An Article of Food . . . "Schmidt's Blue Ribbon . . .", Civ. No. 72-703-HM (D. Md. Jan. 25, 1974) (reported in Kleinfeld, Kaplan, Weitzman, Federal Food, Drug Cosmetic Act 1969-1974 166 (1976). In Schmidt's Blue Ribbon, the court simply noted that a judgment in that case would have a res judicata effect, but did not hold that the government was entitled to such a judgment. Schmidt's Blue Ribbon at 168. That case was decided primarily on an incorrect application of Federal Rule of Civil Procedure 41(a). Id. at 167-68. The rule governs dismissal of claims by a plaintiff; the Court has been able to locate no other cases in which Rule 41(a) was held to govern withdrawal of claims by intervening parties in civil forfeiture cases. Therefore, the Court agrees with Creative that the court in Schmidt's Blue Ribbon incorrectly applied Rule 41(a), and that the case is not controlling here.
In Various Articles of Device, the Court did appear to hold that permitting the claimant to withdraw would deprive the government of a res judicata judgment. Various Articles of Device, 814 F. Supp. at 32. That case is distinguishable, however, because it had progressed farther than the present case. There, the government's motion for summary judgment had already been argued, and was before the Court for decision. Id. at 31. In the present case, the government moved for summary judgment nearly two months after Creative filed its motion to withdraw, and only one week before the hearing on Creative's motion before the Magistrate Judge. The parties have not argued or briefed the issue of summary judgment, as they apparently did in Various Articles of Device. Therefore, because this case has not progressed to the same extent, the Court is not persuaded by Various Articles of Device that the government has any right to a judgment with res judicata effects.
The government also cites the United States Supreme Court's decision in Hipolite Egg Co. v. United States, 220 U.S. 45 (1911), and its progeny, apparently arguing that a party who voluntarily intervenes in a forfeiture proceeding must subject itself to a res judicata judgment. These cases do not support the government's argument. The government is correct that where "a party is before the court in an in rem proceeding, the court has the power to render an in personam judgment against him." United States v. 184 Barrels Dried Whole Eggs, 53 F. Supp. 652, 654 (E.D. Wis. 1943). This statement, however, merely re-states the holding of Hipolite Egg that if a party voluntarily intervenes, he "becomes an actor and subjects himself to costs. . . ." Hipolite Egg, 220 U.S. at 59 (emphasis added). This holding recognizes that, as an intervening claimant, Creative is liable for the government's costs of condemnation and destruction. Creative does not dispute this point, and apparently stands ready to pay such costs. Moreover, the cases that the government cites do not establish any right to a res judicata judgment, but simply recognize that res judicata existed in those forfeiture proceedings. United States v. 4 Cans, Etc., Master Liquid, 127 F. Supp. 243, 246 (N.D. Iowa 1955) and United States v. 14 105 Pound Bags . . . Mineral Compound, 118 F. Supp. 837, 839 (D. Idaho 1953). Creative is correct that none of the cases cited by the government stand for the proposition that a claimant may not withdraw its claim because it voluntarily subjected itself to in personam jurisdiction and that therefore, the government is entitled to a res judicata judgment.
In fact, there is far more recent authority to show that an intervening party may withdraw its claim, as long as it pays the costs of the condemnation as required by 21 U.S.C. § 334 (e). For example, in United States v. Articles of Drug . . . Penapar VK, 458 F. Supp. 687 (D. Md. 1978), the court found that because there was "no longer any dispute [between the government and claimant] concerning condemnation and destruction of the drugs," the claimant's motion to withdraw should be granted. Id. at 689. The only remaining dispute in that case was over costs, and the court found that § 334(e) required the claimant to pay them. Id. See also United States v. 302 Cases . . . of Frozen Shrimp, 25 F. Supp.2d 1352, 1357 (M.D. Fla. 1998) (stating that a claimant may withdraw from a case, but withdrawal does not waive liability for costs); United States v. 374/100 Pound Burlap Bags, 1989 U.S. Dist. LEXIS 3983 (E.D. Pa. April 13, 1989) (holding that an intervening claimant in a civil forfeiture case may withdraw its claim, but is still liable for costs of condemnation).
Thus, the Court finds that although Creative's intervention as a claimant does subject it to an in personam judgment of costs, it does not grant the government a right to a res judicata judgment. The government's objections in this regard are therefore overruled
II. Unfairness
The government next objects to the Magistrate Judge's finding that it will not suffer unfairness if Creative withdraws the Claim and Answer. The Court does not agree. For these contentions, the government again relies upon Various Articles of Device and Schmidt's Blue Ribbon. In both of those cases, the courts held that the cases had proceeded so far that to permit the claimants to withdraw their claims would be unfair to the government, which had devoted significant resources in each case. Various Articles of Device, 814 F. Supp. at 32; Schmidt's Blue Ribbon at 168. Both of these cases, however, had progressed further than the present one involving Creative. As discussed above, the court in Various Articles of Device had already considered arguments on a motion for partial summary judgment, and was prepared to rule when the motion to withdraw was considered. Various Articles of Device, 814 F. Supp. at 31. Schmidt's Blue Ribbon had progressed even further. In that case, the court had considered and ruled upon a motion for summary judgment six months before it considered the motion to withdraw. Schmidt's Blue Ribbon at 166. Even if those two cases properly decided that the government's efforts would have been unfairly wasted, this Court concludes that the present case is at a relatively early stage, and has not progressed far enough to warrant a finding that withdrawal will lead to unfairness. Therefore, the government's objection in this regard is overruled.
ORDER
Based on the foregoing, all the records, files, and proceedings herein, the Court OVERRULES plaintiffs objections [Docket No. 78] and ADOPTS the Magistrate Judge's Report and Recommendation [Docket No. 77]. Accordingly, IT IS HEREBY ORDERED that:
1. Claimant's Motion to Withdraw Its Claim and Answer [Docket No. 70] is GRANTED.
2. Claimant's proposed Default Decree of Condemnation and Destruction shall issue.
3. The costs and proper expenses are to be awarded to the United States and against Claimant Creative when the decree of condemnation is entered.