United States v. Tangtang Zhao – Seventh Circuit Clarifies that Physical Items Distributed in National-Emergency Programs Remain “Government Property” Where the United States Retains Functionally Adequate Supervision and Control

1. Introduction

United States v. Zhao, No. 23-3366 (7th Cir. June 23, 2025) is the first published federal appellate decision squarely applying the “supervision-and-control” test of 18 U.S.C. § 641 to tangible materials supplied during a modern public-health emergency. Tangtang Zhao, a pharmacist at Walgreens, removed blank CDC COVID-19 vaccination cards—provided to the pharmacy free of charge under a federal provider agreement—and sold them online. A jury convicted him on twelve counts of theft of government property. On appeal, Zhao contended that once the cards arrived at Walgreens the United States no longer owned them, so § 641 did not apply. The Seventh Circuit disagreed and affirmed, holding that:

A physical item furnished under an emergency federal program remains “a thing of value of the United States” if, in context, the Government still exercises sufficient supervision and control over its use—even when legal title is not formally retained and no express reversionary clause exists.

The ruling cements an important precedent for prosecutions involving pandemic-response supplies, disaster-relief materials, or any federal property temporarily entrusted to private entities.

2. Case Background

• Parties: United States (plaintiff-appellee) vs. Tangtang Zhao (defendant-appellant).
• Factual setting: During March–April 2021 Zhao listed and sold 630 blank CDC vaccination cards on eBay, earning≈$5,600. eBay repeatedly removed the listings; Zhao nevertheless continued until press inquiries intervened.
• Charge: 12 counts under 18 U.S.C. § 641 (“embezzles, steals … or knowingly converts … any record … or thing of value of the United States”).
• Principal legal issue: Whether the Government retained a property interest in cards after they were shipped to Walgreens under the CDC COVID-19 vaccination program.
• Secondary issues: Adequacy of jury instructions and trial judge’s response to deliberation questions.

3. Summary of the Judgment

Writing for a unanimous panel, Judge Hamilton affirmed:

1. Sufficiency of the evidence: The jury could rationally find that the Government’s contractual restrictions, inspection rights, and termination powers conferred “sufficient supervision and control.” Therefore the cards retained their “federal character” when Zhao took them.
2. Jury-question response: The district court’s concise answer (“That is an issue for you to decide”) was within its discretion; Zhao had expressly approved it, waiving objection.
3. Jury instructions (value & knowledge): Instructions mirrored Seventh Circuit pattern language and were not plainly erroneous.

4. Analysis

4.1 Precedents Cited and Their Influence

1. United States v. Wheadon, 794 F.2d 1277 (7th Cir. 1986) – Originated the “supervision-and-control” test for § 641 in the context of federal housing funds. Zhao extends the test from intangible money to physical goods.
2. United States v. Kristofic, 847 F.2d 1295 (7th Cir. 1988) – Reinforced that legal title alone is not dispositive; emphasized “federal character.” Relied on here to downplay Walgreens’ mere possession.
3. United States v. Maxwell, 588 F.2d 568 (7th Cir. 1978); United States v. Scott, 784 F.2d 787 (7th Cir. 1986) – Both upheld § 641 convictions where federal funds flowed through intermediaries; provided factor lists later summarized in Osborne.
4. United States v. Osborne, 886 F.3d 604 (6th Cir. 2018) – Sixth Circuit synthesis of control factors; Seventh Circuit notes its persuasive value.
5. United States v. Brown, 742 F.2d 359 (7th Cir. 1984) & Hamilton, 726 F.2d 317 (7th Cir. 1984) – Emphasized “continuing federal responsibility” as the jurisdictional anchor.
6. Morissette v. United States, 342 U.S. 246 (1952) – Referenced for the abandonment doctrine, which Zhao unsuccessfully raised.

4.2 Court’s Legal Reasoning

The panel undertook a two-step approach:

1. Identify governing framework. Prior fund-misappropriation cases supply the “supervision-and-control” yardstick; neither statutory text nor precedent limits it to money.
2. Apply multi-factor test fact-sensitively:
   • Contractual Restrictions: Provider agreement barred sale, mandated issuance to vaccine recipients, and incorporated CDC updates.
   • Government Access/Inspection: CDC retained quality-assurance access and could demand inspection of cards.
   • Termination Power: Non-compliance could end Walgreens’ participation—an economic “stick.”
   • Program Context: National emergency required rapid distribution; perfect record-keeping impractical yet Government still bore ultimate responsibility.
   • Course of Dealing: Walgreens treated unused cards as federal property, coordinating shredding with CDC—powerful circumstantial evidence.
   Weighed cumulatively, those elements satisfied § 641 notwithstanding:
   • No express reversionary clause;
   • No granular inventory system;
   • Government’s desire not to retrieve cards physically (health and storage concerns).

4.3 Potential Impact

• Broader reach of § 641. Prosecutors can proceed where tangible federally supplied goods (e.g., disaster-relief equipment, PPE, agricultural subsidies) are pilfered post-delivery, provided supervision-and-control factors align.
• Private-sector compliance. Entities contracting with the Government during emergencies must treat supplied items as federal property unless/until guidelines dictate otherwise.
• Jury-instruction guidance. The decision implicitly signals that pattern instructions suffice; courts need not craft complex multi-factor tests for lay juries unless the facts demand it.
• Digital-market thefts. By valuing property at the “thieves’ market” rate (here, eBay), the opinion underscores that online resale value can trigger felony thresholds quickly.
• Pandemic fraud jurisprudence. Zhao joins a line of COVID-19-era cases (e.g., CARES Act loan fraud) but is distinct in focusing on physical card misuse, likely curbing black-market credential trafficking.

5. Complex Concepts Simplified

18 U.S.C. § 641

A general federal theft statute criminalizing the conversion or sale of U.S. property worth more than $1,000 (felony) or $1,000 or less (misdemeanor).

Supervision-and-Control Test

An appellate-created doctrine asking whether, despite physical delivery to a third party, the United States still directs, limits, or can police the item’s use. Control can stem from contracts, regulations, inspection rights, or termination powers.

Reversionary Interest

The Government’s right to demand the unused property or funds back. Powerful evidence of control, but Zhao clarifies it is not indispensable.

Thieves’-Market Value

The price stolen items fetch in illicit commerce (e.g., on eBay, Craigslist). Courts may use this figure to meet § 641’s $1,000 threshold even if original cost was lower.

Plain-Error Review

Appellate standard applied when a party failed to object at trial. Requires (1) error, (2) that is plain, (3) affecting substantial rights, and (4) seriously affecting the fairness or integrity of proceedings.

6. Conclusion

United States v. Zhao concretely extends the “supervision-and-control” doctrine from financial grants to physical supplies disseminated during a national crisis. The Seventh Circuit confirms that federal ownership under § 641 does not hinge on formal title paperwork or reversion clauses; practical, contextual oversight suffices. Entities that accept federal resources—especially in emergency settings—must heed contractual and regulatory limits or face felony exposure. For courts, Zhao supplies a workable template: analyze function over form, and let juries apply common sense within a straightforward legal instruction. As future health, climate, or security emergencies arise, this precedent will likely anchor prosecutions guarding the integrity of federally funded response efforts.