Bruce Drug, Inc. v. Hollister, Inc.

• Decision Date: 08 September 1982
• Docket Number: No. 81-1745,81-1745
• Citation: 688 F.2d 853
• Parties: 1982-2 Trade Cases 64,941 BRUCE DRUG, INC. and Richard Najarian d/b/a Bruce Medical Supply, Plaintiffs, Appellees, v. HOLLISTER INCORPORATED, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 853

688 F.2d 853

1982-2 Trade Cases 64,941

BRUCE DRUG, INC. and Richard Najarian d/b/a Bruce Medical

Supply, Plaintiffs, Appellees, v. HOLLISTER INCORPORATED, Defendant, Appellant.

No. 81-1745.

United States Court of Appeals, First Circuit.

Argued Feb. 12, 1982.

Decided Sept. 8, 1982.

Donald B. Gould, with whom Andrew S. Hogeland, Goodwin, Procter & Hoar, Boston, Mass., Roger J. McFadden and Hubachek & Kelly, Ltd., Chicago, Ill., were on brief, for defendant, appellant.

Gerald P. Tishler, with whom Barbara A. Lenk, and Brown, Rudnick, Freed & Gesmer, Boston, Mass., were on brief, for plaintiffs, appellees.

Before ALDRICH and CAMPBELL, Circuit Judges, TORRUELLA, District Judge. ^*

BAILEY ALDRICH, Senior Circuit Judge.

This is an appeal by a manufacturer from a preliminary injunction ordering it to continue supplying its products to plaintiff dealers. Plaintiffs, Bruce Drug, Inc. and Richard Najarian, d/b/a Bruce Medical Supply, sue, inter alia, under the Clayton Act, 15 U.S.C. § 26, alleging violation of section 1 of the Sherman Act, 15 U.S.C. § 1, by the termination of their dealerships, and by further actions resulting in their being boycotted by other dealers from whom they had been acquiring defendant's products. The matter was submitted on the basis of exhibits, affidavits and depositions. We reverse, finding unwarranted the court's finding with respect to the likelihood of plaintiffs' success. In so doing we recognize that the scope of our review is no broader because the evidence was written, e.g., Custom Paper Products Co. v. Atlantic Paper Box Co., 1 Cir., 1972, 469 F.2d 178, 179; nor do we distinguish between the respect due to ultimate and to subsidiary findings. Pullman-Standard v. Swint, --- U.S. ----, 102 S.Ct. 1781, 72 L.Ed.2d 66 (1982). At the same time, the fact that the evidence was in writing accentuates the district court's obligation to consider all of it, and the court's findings can stand only if they are reasonably supported on the record as a whole. Custom Paper Products Co. v. Atlantic Paper Box Co., ante.

We have a serious problem with the number of unchallenged records which have been ignored, and the inconvenient affidavits that plaintiffs would dismiss as "obviously false," and as indicative of "the frightening degree to which the dealers were and are intimidated." Certain affidavits have been disregarded not only without giving reasons, but without apparent grounds. And while plaintiffs are quick to reject defendant's affidavits, they emphasize the importance of one given them by a discharged employee (Mayer) of defendant which, in part, is plainly hearsay, and is contradicted not only by several witnesses, but by unimpeached records. Our difficulties do not stop there. Both sides give varying interpretations, or advance different conclusions, about the same event, depending upon the point at issue. Thus defendant asserts at one stage that a letter written on January 23 could not have affected its decision to terminate plaintiffs' dealership because its decision was made January 25, assertedly before the letter could have arrived, and at another stage says that it was plaintiffs' conduct that led to the decision to terminate, said conduct having culminated at a meeting concededly taking place on January 28. Plaintiffs, correspondingly, combat each of these issues by arguing the obverse, as occasion demands. Perhaps under these circumstances we should let the chips lie where they fall, but duty demands a resolution on the record.

Defendant Hollister Incorporated is the nation's leading manufacturer and supplier of ostomy appliances and related products for ostomates, viz., pouches, etc., used for the collection of body wastes which drain through a surgically created opening in the abdomen of individuals whose intestinal or urinary tracts have been fully or partly removed by surgery. Although prescriptions are not needed, it is essential that ostomates be properly fitted to avoid physical injury, and highly desirable that salespersons be tactful and understanding, and have appropriate training. From defendant's standpoint, this is most important at the outset, it appearing that customers, once satisfied, have "strong brand loyalty."

Defendant distributes its products domestically through a network of trained, authorized dealers composed of retail drug stores, pharmacies and other surgical supply stores now totalling approximately 1,600 in number. Pursuant to a contract, Abbott Laboratories, Inc. (Abbott International) has the sole right to distribute Hollister products abroad. Bruce Drug, a retail pharmacy in Waltham, Massachusetts, became an authorized Hollister dealer in 1971. In January, 1978, Richard Najarian, president of Bruce Drug, wrote Hollister and, alluding to previously discussed plans to market Hollister products on a national basis, requested permission to change its account name to Bruce Medical Supply. Hollister responded that it had no objections to the change. Najarian proceeded to set up, under the new name, a national mail order business in ostomy supplies. For a while Bruce Drug and Bruce Medical Supply operated under the same corporate structure and from the same location. In January, 1979, however, Bruce Medical Supply became a separate entity, operating as a sole proprietorship, and in November, 1979, it moved to a warehouse at a different location, leaving Bruce Drug as an authorized Hollister retailer. For future purposes we sometimes refer to the plaintiffs jointly as Bruce.

By this time, through extensive advertising, Bruce Medical Supply had developed a substantial nationwide mail order business, selling ostomy products, both wholesale and retail, at discounts. Its Hollister retail prices, exclusive of shipping and handling charges, were 20% below suggested list. In addition to obtaining natural economies of scale, Bruce was able to place large enough orders with Hollister to qualify for standard quantity discounts. Its business swelled to approximately 10,000 individual customers in the United States and Canada. The court found that approximately 50% of its revenues were derived directly from the sale of Hollister ostomy products. Another 17% of its business came from the sale of non-Hollister, but related, products, most of which were sold to Hollister products users.

On February 1, 1980, Hollister notified Bruce by letter that it was terminating its dealership as of March 1. The court found that, rather than for the reasons given,

"Hollister acted in response to the concerns of other authorized Hollister retailers over the potential loss of business to Bruce Medical Supply. At least one American authorized retailer communicated with Hollister in January, 1980 and suggested that Hollister should 'delay' shipments to Bruce Medical Supply as a way of forcing consumers to purchase from authorized retailers. See Plaintiffs' Exhibit 7. In addition, Abbott International ('Abbott'), the exclusive authorized overseas distributor of Hollister ostomy appliances, expressed concern to Hollister in January, 1980 about the discount pricing by Bruce Medical Supply that appeared in advertisements in the Ostomy Quarterly, an international publication for ostomates. See Plaintiffs' Exhibit 16. See also Plaintiffs' Exhibit 6 (complaint from authorized retailer to Hollister in February, 1979 concerning loss of business to Bruce Medical). The nature of these communications and their timing are circumstantial evidence supporting my finding that Hollister acted primarily because of the discount pricing by Bruce Medical Supply and because of the effect that Bruce Medical Supply was having on sales by authorized Hollister retailers." ¹ (Emphasis ours.)

Having in mind that there were 1,600 dealers, the amount of affirmative support for this general conclusion was miniscule. Although the court spoke of "at least one American authorized retailer ... in January, 1980," there is nothing to warrant the implication in the phrase "at least." The single retailer was a pharmacy in Miami. Its complaint was not about "discount pricing," but only about selling to unauthorized dealers. The previous complainer, a pharmacy in Tacoma, Washington, did make a telephone call a year before about pricing. The third complainer, Abbott, complained only because Bruce was publicizing its discount prices in an area where the court found, properly, see post, that Abbott had exclusive rights. ² Against this insignificant showing substantial evidence was furnished by defendant that discount pricing of its products was generally recognized and accepted. Even plaintiffs' brief acknowledges that there were other discounters. To this we add that there is no evidence of any action taken or threatened against them, then, or at any time. Bruce itself, prior to the present imbroglio, had been discounting most certainly to defendant's knowledge, as its standard practice, for some two years. While Najarian testified that defendant's officials expressed objections, the inescapable facts are that defendant took no action, and did not even discontinue the quantity discounts that permitted Bruce's procedure. On this record we must find clearly erroneous the court's finding a substantial likelihood that, in its February termination, "Hollister acted primarily because of (Bruce's) discount pricing," and particularly so its finding that the termination was the result of a conspiracy or combination, as distinguished from unilateral action by defendant.

Defendant's given reasons were Najarian's refusal to comply with certain credit requests, and his persistently belligerent attitude. The court found both to be pretexts. Although a sudden increase in plaintiffs' orders in January, 1980, might have suggested credit problems, there was evidence from which the court might find this reason was advanced as a talking point. ³ However, the belligerency was well proven, indeed, even admitted in plaintiffs'...