United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 8, 2008 Decided January 23, 2009
No. 08-5138
MALLADI DRUGS & PHARMACEUTICALS, LTD. AND NOVUS
FINE CHEMICALS, LLC,
APPELLANTS
v.
KAREN P. TANDY, IN HER OFFICIAL CAPACITY AS,
ADMINISTRATOR, DRUG ENFORCEMENT ADMINISTRATION,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:07-cv-01069-RMC)
James T. Phalen argued the cause for appellants. With him
on the briefs was Augusta M. Ridley.
Kelsi Brown Corkran, Attorney, U.S. Department of Justice,
argued the cause for appellee. With her on the brief were
Gregory G. Katsas, Assistant Attorney General, and Mark B.
Stern, Attorney. Ronald J. Wiltsie II, Attorney, entered an
appearance.
Before: SENTELLE, Chief Judge, and GARLAND and
GRIFFITH, Circuit Judges.
2
Opinion for the Court filed by Chief Judge Sentelle.
SENTELLE, Chief Judge: Malladi Drugs and
Pharmaceuticals, Ltd. and Novus Fine Chemicals, LLC
(collectively, “Malladi”) sued the federal Drug Enforcement
Administration (“DEA”) for the return of $1,420,000 worth of
ephedrine and pseudoephedrine that the DEA seized and
administratively forfeited or, alternatively, for judicial process
to reassess whether the drugs should be forfeited. The district
court dismissed the complaint for failure to state a claim, and
Malladi appeals, arguing that the district court failed to treat
Malladi’s factual allegations as true. We do not reach this
question but instead affirm the dismissal of the complaint on the
alternative ground that Malladi failed to exhaust its
administrative remedies before the DEA and should not now be
given a second opportunity to pursue judicial forfeiture.
I
The forfeited chemicals at the center of this dispute are List
I chemicals used in the manufacture of controlled substances,
which generally are either illegal drugs or drugs available only
by prescription. See 21 U.S.C. §§ 802(34) (naming ephedrine
and psuedoephedrine as List I chemicals), 812 (controlled
substances), 828 (unlawful distribution of controlled
substances), 829 (prescriptions). To prevent the diversion of
List I chemicals to the illicit manufacture of controlled
substances, only persons with a valid DEA registration may
import them, id. § 822; 21 C.F.R. § 1309.21, and such persons
must follow detailed reporting requirements, 21 C.F.R.
§§ 1304.01-1304.38. The DEA may seize any List I chemicals
imported, possessed, or acquired in violation of these
regulations. 21 U.S.C. § 881(a)(9).
3
The customs laws, as modified by the Civil Asset Forfeiture
Reform Act of 2000, 18 U.S.C. § 981, govern the seizure and
forfeiture of List I chemicals insofar as they are not inconsistent
with other laws applicable to controlled substances and listed
chemicals. See 21 U.S.C. § 881(d). Under the customs laws,
the DEA may forfeit seized goods valued at more than $500,000
only upon a judicial decree after judicial forfeiture proceedings,
19 U.S.C. § 1610, but may administratively forfeit goods valued
at or less than $500,000, id. § 1607. An administrative
forfeiture has the same force and effect as a final decree and
order of forfeiture in a judicial proceeding. Id. § 1609(b). The
DEA must notify parties with an interest in the seized property
of its intent to forfeit the goods administratively. Id. § 1607(a);
18 U.S.C. § 983(a)(1).
Once notified, interested parties may choose to allow the
forfeiture to proceed administratively or may compel the
government to initiate a judicial forfeiture action by filing a
claim for the property. 18 U.S.C. § 983(a)(2). Although the
DEA makes claim forms available, claims need not be made in
any particular form and need only identify, under oath, the
property being claimed and the claimant’s interest in that
property. Id. § 983(a)(2)(C), (D). A party seeking to challenge
the forfeiture of its property in court must file a claim within the
deadline set forth in the notice of forfeiture or, if it did not
receive a notice letter, no later than thirty days after the final
newspaper publication of the notice of seizure. Id.
§ 983(a)(2)(B) (the deadline in the notice letter “may not be
earlier than 35 days after the date the letter is mailed”). If an
interested party files a timely claim, the administrative forfeiture
is terminated and the DEA must file a complaint for judicial
forfeiture in the district court within ninety days or return the
seized property. Id. § 983(a)(3). In the subsequent civil
forfeiture proceedings, the government bears the burden of
proving, by a preponderance of the evidence, that the property
4
is subject to forfeiture. Id. § 983(c)(1).
If no interested party files a claim, then the DEA
administratively forfeits the property by default and the only
option remaining for an interested party is to file a petition for
remission or mitigation of the forfeiture with the DEA. 28
C.F.R. § 9.3. “Whether the property or a monetary equivalent
will be remitted to an owner shall be determined at the
discretion of the Ruling Official” within the DEA. 28 C.F.R.
§ 9.7; see Tourus Records, Inc. v. DEA, 259 F.3d 731, 735 (D.C.
Cir. 2001).
II
Malladi Drugs and Pharmaceuticals, Ltd. (“Malladi DPL”),
a corporation based in India, is a supplier of pharmaceutical raw
materials. At the time of the underlying events, Malladi, Inc., a
United States subsidiary of Malladi DPL, imported List I
chemicals from Malladi DPL and sold them in the United States
to Novus Fine Chemicals, LLC (“Novus”), among other
companies. Novus is now a wholly-owned subsidiary of
Malladi DPL, and Malladi, Inc., which is not a party to this
litigation, has ceased operations.
On April 6, 2005, DEA agents inspected Malladi, Inc.’s
record-keeping procedures for List I chemicals at its corporate
headquarters in New Jersey. The agents “expressed
reservations” about the organization of Malladi, Inc.’s file room,
its document retention system, and the availability of
documentation necessary to reconcile inventory. The DEA
agents returned to Malladi, Inc.’s headquarters two days later
and seized 233 drums of ephedrine and pseudoephedrine in
inventory, valued at $241,500. On April 11, the agents again
returned to Malladi, Inc.’s corporate headquarters and, according
to the allegations of the complaint, demanded surrender of the
5
company’s DEA import registration, which the manager
relinquished “under duress and pressure from several DEA
officials.” After Malladi, Inc. surrendered its import
registration, the DEA seized three shipments of ephedrine and
pseudoephedrine shipped from Malladi DPL in India to Malladi,
Inc. in New Jersey upon their arrival at United States ports: 400
drums of ephedrine hydrochloride, valued at $464,000, on April
14; 240 drums of pseudoephedrine hydrochloride, valued at
$250,500, on April 27; and 400 drums of ephedrine
hydrochloride, valued at $464,000, on May 2. The aggregate
value of all four seizures from Malladi, Inc. was $1,420,000.
The DEA notified Malladi, Inc. of the four seizures and its
intention to administratively forfeit the chemicals. The letters
of notification also informed Malladi, Inc. of the procedures and
deadlines for filing a claim to contest the forfeiture in court and
for filing a petition requesting remission or mitigation of the
forfeiture from the DEA. Malladi did not file a claim for the
property, which would have entitled it to judicial forfeiture
proceedings, but instead allowed the DEA to administratively
forfeit the goods and then filed a petition for remission of each
of the four seizures. The DEA denied all four petitions and
administratively forfeited the chemicals.
Malladi then filed suit against the DEA in district court for
return of the chemicals or the institution of judicial forfeiture
proceedings. In its action, Malladi contended that the DEA was
required to pursue judicial, rather than administrative, forfeiture
because the four seizures—the aggregated value of which
exceeded $500,000—were part of a single plan accomplished
when the DEA seized Malladi’s inventory and then
“constructively seized” the three inbound shipments by
demanding Malladi’s import registration. See 19 U.S.C. § 1610.
Malladi also argued that the DEA should have treated its
petitions for remission as claims compelling judicial
6
proceedings and that the administrative forfeitures violated its
Fifth Amendment due process rights. The DEA moved to
dismiss the complaint, urging that Malladi never filed a claim
seeking judicial process, that aggregation of the four seizures
was not required, and that Malladi waived the aggregation
argument by not raising it before the DEA. The district court
granted the motion to dismiss, concluding sua sponte that
aggregation was inappropriate because the DEA could not have
constructively seized the shipments by demanding Malladi’s
import license under duress, when Malladi itself stated that it
“voluntarily surrendered its List I Registration” in its four
petitions to the DEA, which it attached to its complaint. The
court also held that Malladi’s petitions for remission could not
be considered claims requiring the DEA to commence judicial
forfeiture proceedings and that the due process argument failed
because it was predicated on the other two unsuccessful
arguments.
Malladi appealed and now argues that the district court
failed to accept the facts alleged in the complaint in the light
most favorable to Malladi when the court rejected the factual
allegation of duress because it believed that allegation
contradicted Malladi’s explanation in its petitions to the DEA
that it voluntarily surrendered its import registration. We affirm
the district court’s dismissal of the complaint, but on the
alternative ground that Malladi failed to exhaust its
administrative remedies before the DEA and should not now be
given a second opportunity to pursue judicial forfeiture when it
failed to seek that remedy within the statutory deadline.
III
We review de novo the district court’s granting of the
motion to dismiss and we may affirm the judgment of that court
on grounds different from those assigned in the decision under
7
review. Danielsen v. Burnside-Ott Aviation Training Ctr., Inc.,
941 F.2d 1220, 1230 (D.C. Cir. 1991). Malladi does not appeal
the district court’s conclusion that its filings with the DEA were
petitions for remission and not claims triggering judicial
forfeiture proceedings. In its remaining complaint before the
district court, Malladi argued that the customs statutes required
the DEA to initiate judicial proceedings to forfeit the chemicals
because the agency should have aggregated their value given the
circumstances of their seizure, and that the administrative
forfeiture therefore denied Malladi due process. This legal
challenge fails because Malladi did not exhaust its
administrative remedies before filing suit, having neglected to
use the mechanism for obtaining judicial relief provided in the
forfeiture statutes and having failed to raise the aggregation
argument in its proceedings before the DEA.
The statutes and regulations governing DEA forfeiture of
List I chemicals set forth only two options for a party asserting
ownership to contest an administrative forfeiture and reclaim its
property: a petition for remission, which asks the agency for
discretionary return of the property, and a claim, which initiates
the judicial process to decide whether the property should be
forfeited. A party claiming ownership of the seized property
may choose to pursue either the administrative or the legal
remedy, complying with the applicable filing deadline for its
choice.1 As previously discussed, if no one files a claim for the
property, the DEA may administratively forfeit it by default,
1
The DEA’s notice-of-seizure form states that a party
claiming ownership “may petition the DEA for return of the property
. . . and/or . . . may contest the seizure and forfeiture of the property in
Federal court,” implying that an owner may pursue both routes. This
may be true, but as a practical matter, filing a claim to contest the
forfeiture in court ends the administrative forfeiture from which an
owner would petition for remission.
8
which forfeiture has the same force and effect as a final decree
and order of forfeiture in a judicial proceeding. This
administrative system efficiently settles disputes over property
seized by the DEA, serving the agency’s interest in finality and
the owner’s interest in expeditious return of its property.
Malladi received from the DEA four notices of seizure and
intent to administratively forfeit the seized chemicals, and each
notice informed Malladi of the procedures and deadlines for
filing a claim to contest the forfeiture in court and for filing a
petition requesting remission or mitigation of the forfeiture. The
notices further alerted Malladi that failure to file a claim
contesting the forfeiture and seeking judicial resolution would
“result in the termination of [its] interest in the asset, and may
preclude . . . contesting the forfeiture of the asset in any judicial
proceeding.” Malladi chose not to file a claim contesting any of
the four administrative forfeitures or to pursue the judicial
forfeiture route in any way. Instead, Malladi chose only to
pursue the discretionary petition route and allowed the June and
July 2005 deadlines for filing a claim to pass. Its chosen remedy
having failed, Malladi now for the first time seeks the alternative
remedy of judicial forfeiture, outside the statutorily-provided
administrative procedures and deadlines.
The forfeiture statutes and regulations provide alternative,
not sequential, administrative and legal remedies for an
administrative forfeiture. Malladi elected to forego the legal
remedy it seeks here when it chose the discretionary
administrative remedy and allowed the time for filing a claim
under the administrative scheme to pass. Having waived its
opportunity for judicial forfeiture proceedings during the
administrative process, Malladi may not now attempt to correct
its choice of remedy in federal court. See Cole v. United States
(In re $844,520), 136 F.3d 581, 582 (8th Cir. 1998) (per curiam)
(holding district court “properly rejected [petitioner’s] attempt
9
to collaterally attack the administrative forfeiture” when the
petitioner received notice of the forfeiture but did not contest it
by filing a claim); Sarit v. DEA, 987 F.2d 10, 17 (1st Cir. 1993)
(“[M]ost challenges to forfeiture would be foreclosed by a
plaintiffs’ [sic] failure to utilize the mechanism for obtaining
judicial relief provided in the forfeiture statute and
regulations.”); Averhart v. United States (In re $67,470), 901
F.2d 1540, 1545 (11th Cir. 1990) (“It is inappropriate for a court
. . . to review the merits of a forfeiture matter when the
petitioner elected to forego the procedures for pursuing an
adequate remedy at law. . . . [The court] cannot be used to
enable a petitioner to rescind his own choice as to which avenue
of relief to pursue.”); see also United States v. Price, 914 F.2d
1507, 1510-11 (D.C. Cir. 1990) (holding that the government
may preempt a district court’s jurisdiction to resolve a post-
conviction claim for return of property by instituting
administrative forfeiture proceedings, making a challenge to the
forfeiture in the administrative proceeding the defendant’s only
remedy). We will not “encourag[e] people to ignore [an
agency’s] procedures” by allowing litigants who “deliberate[ly]
flout[]” administrative processes to seek those forfeited
administrative remedies from the court later. McKart v. United
States, 395 U.S. 185, 195 (1969). Because Malladi could have
“petition[ed] the agenc[y] directly for the relief [it] seek[s] in
this lawsuit” and failed to do so, it has “not exhausted [its]
administrative remedies.” Ass’n of Flight Attendants v. Chao,
493 F.3d 155, 158 (D.C. Cir. 2007).
Malladi compounded the exhaustion problem by failing to
raise its argument about aggregation and judicial forfeiture
before the DEA at all, even in the petitions that it did file. For
the first time, Malladi now argues that the DEA should have
initiated judicial forfeiture proceedings without the stimulus of
a claim, based on the aggregated value of the seized property.
But Malladi did not make this argument in any of its four letters
10
to the DEA. Malladi did not in any way ever suggest to the
agency that it sought judicial forfeiture proceedings, that the
DEA should have initiated such proceedings, or that the value of
the seizures should be aggregated and considered as one seizure
over $500,000. Nor is the question of aggregation an obvious or
settled one. As counsel for Malladi admitted at oral argument,
he could find “no law” about aggregation, either statutory or
case law. The only authority of which the parties have made the
court aware is the DEA’s own internal guidance describing the
possibility of aggregation in general terms.
Aggregation of drug seizures, thus, is just the sort of open
and fact-specific question that agency expertise is best suited to
consider in the first instance, highlighting exhaustion’s “twin
purposes of protecting administrative agency authority and
promoting judicial efficiency.” Ass’n of Flight Attendants, 493
F.3d at 158 (quoting McCarthy v. Madigan, 503 U.S. 140, 145
(1992)). We consistently refuse to consider arguments litigants
raise for the first time in court rather than before the agency,
including DEA forfeiture proceedings. See id. at 158-59; United
Transp. Union v. Surface Transp. Bd., 114 F.3d 1242, 1244-45
(D.C. Cir. 1997); Colon-Calderon v. DEA, 218 F. App’x 1, 1
(D.C. Cir. 2007) (refusing to consider notice argument that
petitioner did not raise before the DEA in his petition for
remission); see also Linarez v. DEA, 2 F.3d 208, 213 (7th Cir.
1993) (“[A] forfeiture cannot be challenged in district court
under any legal theory if the claims could have been raised in an
administrative proceeding, but were not.”). Consistent with the
concerns underlying exhaustion and waiver of claims, Malladi’s
failure “to pursue normal administrative remedies” here allowed
it to “side-step[] a corrective process which might have cured or
rendered moot the very defect later complained of in court.”
McGee v. United States, 402 U.S. 479, 483 (1971). We will not
countenance a complaint that is the culmination of “a
thoroughgoing attempt to sidestep the administrative process
11
and make the first serious case for [judicial forfeiture] later in
court.” Id. at 487.
Malladi urges that because this action is a collateral attack
on the administrative forfeiture rather than a direct appeal from
an agency decision, it may raise new arguments that it did not
assert before the agency. The critical distinction, however, is
not the posture of the complaint but rather whether the plaintiff
had the opportunity to call the alleged error to the agency’s
attention in the prior proceedings. If, for example, inadequate
notice or illegal procedures prevented the plaintiff from being
able to raise its objection before the agency, courts may allow
the plaintiff to raise the objection for the first time in a collateral
attack on the agency action. See Sarit, 987 F.2d at 17 (“[C]ourts
have entertained challenges to the adequacy of notice, reasoning
that the mechanism [for obtaining judicial relief] is not available
to a plaintiff who is not properly notified of the pending
forfeiture.”); Averhart, 901 F.2d at 1545 (“[J]urisdiction might
be appropriate when a petitioner’s failure to properly seek legal
relief [from administrative forfeiture] resulted from errors of
procedure and form or the government’s own misconduct.”).
But Malladi does not dispute that it received adequate notice of
the administrative forfeitures, that it chose to contest those
forfeitures only by filing petitions for discretionary remission,
and that it never raised any judicial forfeiture arguments before
the DEA. Malladi had adequate opportunity to make the DEA
aware of its aggregation objection but failed to do so, therefore
it cannot now challenge the DEA’s action on that ground.
* * *
For the foregoing reasons, we affirm the district court’s
dismissal of the complaint on the alternative ground that Malladi
has failed to exhaust its administrative remedies.