Otis Clapp & Son, Inc. v. Filmore Vitamin Co.
| Decision Date | 04 February 1985 |
| Docket Number | No. 83-2931,83-2931 |
| Citation | 754 F.2d 738 |
| Parties | OTIS CLAPP & SON, INC., Plaintiff-Appellant, v. FILMORE VITAMIN COMPANY d/b/a Medique Products, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Alan S. Ganz, Rooks, Pitts, Fullagar & Poust, Chicago, Ill., for plaintiff-appellant.
James R. Sweeney, McWilliams, Mann, Zummer & Sweeney, Chicago, Ill., for defendant-appellee.
Before ESCHBACH and COFFEY, Circuit Judges and GRANT, Senior District Judge. *
The plaintiff appeals not only the amount it recovered in an unfair trade competition action but also the denial of motions to supplement its complaint and to compel discovery. We affirm.
Both the plaintiff, Otis Clapp & Son, Inc. ("Otis Clapp") and the defendant, Medique Products ("Medique"), a division of the Filmore Vitamin Company, sell non-prescription pharmaceuticals in the institutional medical market. Both companies sell their pharmaceutical supplies through distributors to the end-purchasers who, typically are nurses employed in plant or office clinics. Medique entered the market in 1975 or 1976 and developed a line of pharmaceuticals that competed against many of Otis Clapp's products. At that time, Otis Clapp was an established and growing business.
Otis Clapp complained of five unfair trade practices by Medique: (1) infringement of several of its trademarks; (2) false, misleading, and deceptive comparative advertising; (3) false statements about the quality and effectiveness of Otis Clapp products and their ingredients; (4) false representations that certain Otis Clapp products did not conform to Food and Drug Administration Guidelines; and (5) the hiring of James Rose, a former Otis Clapp employee, in order that they might obtain confidential information from him. 1 Specifically, Otis Clapp asserted that FEMAIDS, Medique's menstrual relief medication, infringed Otis Clapp's trademark for FEMCAPS, also a menstrual relief medication. Furthermore, Otis Clapp objected to Medique's use of the name DISPENSER-PAK for its individual dose dispensing packaging as an infringement of Otis Clapp's DISPENS-A-KIT trademark, used by Otis Clapp to describe similar packaging. The comparative advertising and false statement claims were based on a 1977 Medique brochure, which was used both as a sales promotion device and to interest new distributors in handling the Medique line. In addition, the literature was also given to existing Medique distributors to be disseminated to final purchasers.
Otis Clapp filed its complaint in 1978 alleging claims under Section 35 of the Lanham Act ("Act"), 15 U.S.C. Sec. 1117, as well as state law claims for trademark infringement. 2 On January 22, 1982, the district court granted a partial summary judgment to Otis Clapp, enjoining Medique from disseminating some of its literature and making representations that Otis Clapp's cough and cold products do not conform with the guidelines of the FDA review panel for cough and cold products. Medique was also enjoined from claiming that certain Otis Clapp products did not contain an effective dosage of salicylamide.
On October 22, 1982, the defendant admitted liability under the Lanham Act and state law claims without conceding damages. The defendant's counsel informed the court that his client was without funds, could not afford to pay attorney's fees, and could not afford to respond to the plaintiff's discovery program. According to the representations made to the district court, the defendant admitted liability solely because it was financially unable to litigate the issue. Attempting to avoid both a damages hearing and supplemental proceedings under Fed.R.Civ.P. 69, the district court encouraged the parties to negotiate a settlement as to the amount of damages.
During monthly status hearings held from November 22, 1982 through February 15, 1983, the parties presented several of their points of contention to the district court. The plaintiff, concerned about whether Medique had transferred its assets to another corporation, questioned whether or not it was receiving an accurate depiction of the defendant's resources or was being misled as to its ability to respond in damages. The plaintiff pointed out that in 1979, Filmore Vitamin changed its corporate name to I. Udell Associates, Inc. and transferred its packaging operations, including inventory and equipment, to a newly formed affiliate company named Filmore Vitamin, Inc. The defendant objected to the plaintiff's attempt to inquire into the defendant's assets, properly asserting that the plaintiff could discover the defendant's assets in a supplemental proceeding under Rule 69. Furthermore, the defendant repeatedly complained to the court that the plaintiff had failed to submit settlement proposals and protested that the plaintiff in fact was prolonging the litigation in order that it might force the defendant out of business. The plaintiff on frequent occasions requested the district court to schedule a trial date on the damage issues. The district court attempted to strike a balance between protecting the defendant from oppressive discovery and, on the other hand, allowing the plaintiff the opportunity to obtain sufficient information about the defendant's financial status to make an informed evaluation of the settlement offer. The plaintiff was allowed to depose Irving Udell, the principal figure of I. Udell & Associates, Inc. In addition, the defendant supplied the plaintiff with corporate documents and financial reports, and an opinion letter from a disinterested attorney who examined the financial data and concluded that Medique's corporate assets had not been siphoned off. The settlement negotiations fell apart in February 1983 when the plaintiff demanded $192,000 in settlement before the damages trial. After the failure of the settlement negotiations, the defendant filed a motion for attorney's fees pursuant to 28 U.S.C. Sec. 1927 arguing that the plaintiff had deliberately protracted the litigation.
On February 16, 1983, the district court scheduled a trial on the damages issue for April 14, 1983. On February 25, 1983, the plaintiff filed a request for production of documents. On March 11, 1983, the plaintiff filed a "motion for clarification of defendant's identities, substitution of defendants, and to file an amendment to the complaint." According to the record, the plaintiff sought the documents from the defendant in order that they might establish that Medique's unfair trade practices were both continuing and intentional. Furthermore, the plaintiff sought documents pertaining to the defendant's sales and costs. In its motion to amend the complaint, the plaintiff requested the court to grant them leave to add comparison literature issued by the defendant in addition to the 1977 brochure attached to the complaint. Secondly, the plaintiff wished to add Irving Udell and the new Filmore Vitamin Company as defendants. The district court denied the motions noting, "the plaintiff a year ago or more recognized that--well, in fact, longer ago than that--recognized that it might have a subsequent and different claim against the defendant for conduct following the filing of the complaint." Thus, those portions of the motions directed towards conduct subsequent to the filing of the complaint were denied because "[t]here comes a time when a five-year-old lawsuit needs to get put to bed." Those portions of the motions concerning the identity of the defendants, and the attempt to add defendants, were denied because their grant would of necessity require new and lengthy discovery and thus would prolong the litigation. Specifically, the district court held that the diversion of assets question would be more appropriately resolved in a supplemental proceeding.
At the trial on damages, the plaintiff presented evidence on consumer reactions to Medique's advertising. Even though the consumers were concerned, they were not influenced enough to cease and desist from using Otis Clapp products. The plaintiff also introduced financial evidence as to Medique's sales, the cost of a curative advertising campaign, and proof of attorney's fees in excess of $100,000. In addition, the plaintiff presented a great deal of financial evidence on its real and hypothetical growth 3 arguing that, because of the defendant's actions, it had not achieved the rate of growth that it might and should have achieved without the alleged illegal interference. The defendant, in addition to presenting evidence to rebut the allegation that its action had intentionally and willfully infringed the plaintiff's trademark, also presented financial evidence concerning the profitability of its products. Mr. Udell testified that Medique's records do not provide a basis for allocating costs and expenses among particular products; rather, Medique's cost figures were allocated across all product lines. Mr. Udell also stated that 70 percent of the selling price of his goods was attributable to the cost of producing the goods. Gary J. Schwartz, an accountant for Medique, testified that, after reviewing the financial statements of the Filmore Vitamin Company 4 and I. Udell & Associates, Inc., he found that Medique had lost money during the period beginning with the accounting year ending on April 30, 1978 through the accounting year ending on April 30, 1981. The defendant also introduced evidence establishing the net loss attributable to Medique operations.
Noting that the plaintiff failed to prove lost sales, the district court analyzed the plaintiff's proof of unrealized growth and concluded that the plaintiff's evidence failed to establish that the failure to grow as projected was caused by the defendant's actions. The district court did, however, allow the plaintiff to recover the full cost of its curative advertising campaign. As to attorney's fees, the district court commented...
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