Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-08-05138/USCOURTS-caDC-08-05138-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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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.

USCA Case #08-5138 Document #1160544 Filed: 01/23/2009 Page 1 of 11
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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).

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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

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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

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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

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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

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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. 

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,

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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

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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 postconviction 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

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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

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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. 

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