SAN FRANCISCO (CN) - Federal prosecutors faced off with FedEx on Monday at the start of a criminal trial accusing the global courier of delivering millions of packages containing illegal drugs from illicit Internet pharmacies.
In his opening statement, Assistant U.S. Attorney John Hemann likened the shipping giant, charged alongside several of its corporate entities with conspiracy to distribute controlled substances, to a part-time drug dealing operation.
"This case is about a prolific drug courier that delivered millions and millions of packages over a 10-year period that contained illegal drugs," Hemann said. "It is surprising because of the defendants' single-minded effort to make sure that they were paid before their customers were arrested."
In addition to the controlled substances charges, FedEx was indicted in 2014 for conspiring to distribute misbranded drugs and launder money.
FedEx entities are the only defendants in the indictment, but it names customers with whom FedEx is accused of conspiring, including the Chhabra-Smoley Organization and Superior Drugs.
Chhabra-Smoley ran a network of illegal Internet and fulfillment pharmacies, and Superior Drugs acts as an illegal fulfillment pharmacy filling orders for the online pharmacies, according to the indictment. The drugs were allegedly prescribed "without a legitimate medical purpose and outside the usual course of professional practice."
Outlining the scheme to U.S. District Judge Charles Breyer, who will preside over the bench trial for the next two months, Hemann said a buyer would seek out a particular drug online, connect to an Internet pharmacy, then fill out a questionnaire or consult with an affiliated doctor over the phone. The pharmacy would then fill the order through a fulfillment center, and FedEx would allegedly pick up the pills and deliver them to the buyers.
FedEx's guilt hinges on what it knew about the packages it was picking up from these companies, which Hemann said is evidenced by a myriad of corporate email exchanges. Some discussed letters received from the DEA and others were news articles about DEA raids on illegal Internet-based pharmacies and fulfillment warehouses, he said. In some instances, they allegedly discussed writing off outstanding debt from those businesses; in others, they strategized about how to get paid.
"Even as they repeatedly got burned by the pill mills, they chose to keep at it because they didn't want to lose revenue to UPS," Hemann said.
Hemann also cited an email from a driver complaining about buyers chasing FedEx trucks down the street and beating on the sides of the vehicles, shouting for their orders.
"It's like The Walking Dead out there," Hemann said. "Drivers knew what they were dealing with."
Hemann pointed to another corporate email, where a FedEx executive informed colleagues of a letter he'd received from the DEA on the death of a prescription drug addict named Elizabeth Dillinger in 2006.
"A woman who had not seen a doctor was sent prescription drugs and died as a result," the prosecutor said. "The DEA told FedEx the drugs were from Superior."
The letter also referenced a doctor named Hassan Gasfar, who had consulted with Dillinger over the phone, leading Breyer, who has been skeptical of the government's prosecution of FedEx since the beginning of the case, to ask, "Would the law have permitted a call to this doctor to discuss with FedEx whether that person had a personal exam?"
Hemann said he didn't know.
"Well you have to know because you said FedEx didn't go to the doctor," Breyer said. "Could he even say 'that's my patient'? I'm interested in whether or not the investigation would have been appropriate under the law."
Calling the government's premise for its case "wrong and dangerous," FedEx attorney Cristina Arguedas blasted the idea that FedEx is on trial essentially because it chose not to ask its customers about their packages.
"We're in a criminal court because this prosecutor thinks FedEx should hold to its customers, and say, 'you look a little sick and sweaty, you got a package today and one yesterday, you want to tell me about it Mrs. Jones?'" she said.
Arguedas said the most dangerous aspect of the prosecution, with ramifications extending beyond the courtroom, is the government's theory that FedEx should have stopped picking up packages for any business under investigation, even if that business eventually got a state license and a DEA registration number.
"In that world, we don't need federal adjudication of anything," she said.
Arguedas said FedEx merely picked up and delivered parcels in the ordinary course of its business, and couldn't have known just from the look of a package whether it contained an illegal controlled substance or a vitamin supplement.
"Does FedEx have the authority to open up any package it wishes?" Breyer asked.
"They have the authority to open up if they want to. FedEx would not open up in order to invade someone's medical privacy," Arguedas said. "In general, when FedEx is looking at a package, if they think something about it doesn't look right, they call law enforcement."
Arguedas said FedEx worked closely with law enforcement to identify and investigate suspicious shippers, including the very pharmacies with which they are accused of conspiring.
"There is a complete absence of evidence to prove an unlawful agreement between FedEx and its alleged co-conspirators. FedEx only picked up packages from pharmacies that were licensed by the state and registered by the DEA," Arguedas said.
"FedEx helped the DEA investigate the two people they are being charged of conspiring with, Superior and Chhabra-Smoley!"
In fact, she said, FedEx had requested a meeting with government agencies about the subject of Internet-based pharmacies and illegal drugs in May 2002. Officials from the DEA, Food and Drug Administration, the Federal Bureau of Investigation and the United States Postal Service attended.
Arguedas said FedEx told them, "'We will stop shipping with any customer if you tell us they are operating illegally.' And in a friendly, possibly bureaucratic way they said, 'thank you we'll get back to you.' And never did."
Breyer stopped Arguedas during her opening statement to ask if any law enforcement agency had ever asked that FedEx cease picking up packages from a particular site.
Arguedas answered no.
"What's the government's opinion?" Breyer asked.
Assistant U.S. Attorney Kirstin Ault replied that the court seemed to be "putting us on the spot."
"It's only been eight years," Arguedas interjected.
"Everyone is on the spot," Breyer said, instructing prosecutors to answer.
"I think the answer is no," Ault said.
"The government picked the right answer," Arguedas replied.
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