QUESTION: This month’s question is: I had an occupant who was a pharmaceutical representative who went into default after, I believe, he was fired from his job. After I went through all of the necessary notices, advertising, etc., I cut the lock and, as I expected it is, the unit is full of not just promotional materials, but drug samples. Can I sell these drug samples at my lien sale?
ANSWER: The answer to your question is no, for reasons I will describe below. Before we explore the answer, let us back up and talk about a few other possible times when the situation could have been handled differently to avoid this situation in the first place.
1. Who should your occupant be when your occupant is a pharmaceutical representative? In my view, the named occupant ought to be the company, signed by someone on behalf of the pharmaceutical company that may actually have some staying power, like a sales manager, regional director, office manager or something like that. Obviously, I do not believe the President of Pfizer is going to stop and sign self-storage leases all day for the company’s pharmaceutical representatives; however, there is a relatively large amount of turnover in pharmaceutical representatives. You do not want to be stuck with a pharmaceutical representative as your occupant, a unit full of prescription drugs, and the pharmaceutical company demanding that the new representative be allowed into the unit. If the pharmaceutical representative is your actual occupant, you cannot simply substitute a new occupant unless the old representative/occupant cooperates, which often does not happen.
2. What do you know about the company that the representative worked for? If you are renting to a pharmaceutical representative you should know a lot about the company he/she works for, including the name of the supervisor, phone numbers, addresses, and etc., so that you have a chance of reaching someone at the pharmaceutical company who can help you properly dispose of these pharmaceuticals in the event the unit does have to go to default. More appropriately, you should be able to deal with the pharmaceutical company to substitute ownership or return possession of the goods to them so that you do not have to go through this disposal. This, of course, works best when the pharmaceutical company or a higher up in the pharmaceutical company is the actual named occupants named on the rental agreement.
3. What does your statute say you have to do or can do with your property when there is a default? If you are in a state like the person who asked this question, Indiana, your statute discusses not just sale of property in the event of a default, but also disposal. I have not been able to find the, what lawyers call, legislative intent behind the disposal language in the Indiana Statute, but I do see the word “disposal” in may state self-storage statutes. Do no overlook this language. While I do not know specifically what the intent of the legislature was when they were talking about disposal, I do believe that it was intended, in various states, to cover situations where the property was not legal or safe to sell to the general public. Disposal was not intended, in my opinion, to simplify your default process by throwing out goods that were otherwise saleable. Pharmaceuticals rise to this level of disposal. If you have a state statute that discusses disposal in addition or concurrently with the sale, you can consider doing a notice of intent to dispose, advertising the disposal, and then make the disposal. This may have been misunderstood by the operator, who asked the question, do not get all the way to the sale date and discover you have drugs, cut the lock off earlier and give notice of intent to dispose of stored property.
What does this “disposal” mean? It probably means either returning the goods to the pharmaceutical company or having the local law enforcement authorities assist you with destroying the pharmaceuticals. What it does not mean is selling or keeping the drugs?
Now, let us go back to the original question. Can you sell drugs in a pharmaceutical representatives unit? The answer, again, is no. Pharmaceutical samples, like other prescription drugs, are regulated by the Federal Government and may only be dispensed with a prescription. Your intent to sell these drugs, even if you were going to sell them to a doctor’s office (which, by the way, no doctor’s office would want to buy them because they get them for free from their pharmaceutical representative anyway) would be the sale of prescription medication without a license to dispense (pharmacy license) and without a prescription from a licensed medical practitioner (such as a doctor or nurse practitioner).
This proposed sale would put you in immediate trouble with not only your local law enforcement but with the Food and Drug Administration (“FDA”), who regulates prescription drugs and perhaps the Drug Enforcement Agency (“DEA”). I have seen the DEA charge self-storage operators with improper handling of pharmaceuticals when they go missing and there is an accusation that the self-storage operator stole or had ability to steal pharmaceutical products.
Also, the pharmaceutical companies keep track of the number of samples sent out. You may have never noticed it but the pharmaceutical representatives log those drugs in and out of doctors offices, when they take expired samples they are returned somewhere to be destroyed, otherwise, they have to certify that they dropped off “x” number of samples at a doctor’s office and a doctor’s office has to sign for those samples, so that the pharmaceutical company can keep track or all of the samples out on the street. At some point, the pharmaceutical company is going to come looking for its samples. If you sold them, the pharmaceutical company would have an obligation to report you to law enforcement authorities.
All in all, this is a bad idea, however, I think with proper planning, i.e. understanding who your occupant is and getting a higher ranking person within the company that can switch the on-the-ground drug representative’s access rights without getting the former representative’s consent is the most useful thing to do. Gathering information about the pharmaceutical company so you can reach the appropriate person when you have a default, or a problem that might result in the drugs being compromised, is almost always going to prevent your problem. If, you do find yourself without the ability to substitute the occupant and/or a drug company being unresponsive to your requests for assistance in either switching out the occupant or claiming the drugs, then consider a disposal rather than a sale. Yes, you will not make any money as a result of the default of the occupant, but you will not go to jail either.
You can send your questions, comments, or suggestions for future topics to Jeffrey Greenberger at info@test.selfstoragelegal.com or mail them to Jeffrey Greenberger c/o Katz Greenberger & Norton LLP, 105 E. Fourth Street, Suite 400, Cincinnati, Ohio 45202 or you can reach Mr. Greenberger at (513) 721-5151, or visit his website at www.selfstoragelegal.com.