Abtrax Pharmaceuticals, Inc. v. Elkins-Sinn, Inc.

• Citation: 655 A.2d 1368,139 N.J. 499
• Decision Date: 10 April 1995
• Docket Number: INC,ELKINS-SIN
• Parties: ABTRAX PHARMACEUTICALS, INC., t/a Summit Hill Laboratories, Plaintiff-Respondent and Cross-Appellant, v., Defendant-Appellant and Cross-Respondent.
• Court: United States State Supreme Court (New Jersey)

Page 499

139 N.J. 499

655 A.2d 1368

ABTRAX PHARMACEUTICALS, INC., t/a Summit Hill Laboratories, Plaintiff-Respondent and Cross-Appellant, v. ELKINS-SINN, INC., Defendant-Appellant and Cross-Respondent.

Supreme Court of New Jersey.

Argued Jan. 3, 1995.

Decided April 10, 1995.

Timothy J. Hinlicky, Marlton, for appellant and cross-respondent (Parker, McCay & Criscuolo, attorneys; Stacy L. Moore, Jr., on the brief).

Bernard F. Conway, Morristown, for respondent and cross-appellant (Mr. Conway, attorney; Kevin Weinman, on the brief).

The opinion of the Court was delivered by

STEIN, J.

The issue before us is whether a complaint should be dismissed pursuant to Rule 4:23-2(b)(3) for discovery misconduct consisting of the willful concealment of relevant documents. The Law Division found that plaintiff's conduct was contumacious, dismissed plaintiff's complaint with prejudice, and awarded counsel fees and expenses. In an unreported opinion, the Appellate Division agreed with the finding that plaintiff had willfully concealed relevant documents, affirmed the award of counsel fees and expenses, but reversed the trial court's dismissal of the complaint. We granted certification, 137 N.J. 314, 645 A.2d 142 (1994), and now hold that the trial court properly exercised its discretion in dismissing Abtrax's complaint. As a result, we reverse in part the judgment of the Appellate Division and reinstate the judgment of the Law Division dismissing the complaint.

I

Plaintiff Abtrax Pharmaceuticals, Inc. (Abtrax), is a wholesaler of veterinary supplies located in Navesink, New Jersey. Charles W. Rahner, Jr., the company's president, owns ninety-nine percent of Abtrax's stock. In August 1969, defendant, Elkins-Sinn, Inc. (Elkins), agreed to package a veterinary product developed by Abtrax called Gecolate, an intravenous muscle relaxant for horses. Rahner and Elkins developed techniques for sterilizing the Gecolate powder and packaging it so that sterile water could be added before use. Abtrax holds the patent for that process. Production began in 1972 when the Food and Drug Administration approved Abtrax's New Animal Drug Application. By 1974, Abtrax began marketing the product.

In February 1982, Elkins informed Abtrax that it would stop producing Gecolate powder. In 1984, A.H. Robins, which became Elkins's parent company after the initial production of Gecolate powder, began to market Guailaxin, a competing product. Although Rahner claims that he was unsuccessful in finding an alternative manufacturer, since 1987 Vet Labs, Inc. has been producing Gecolate injection for Abtrax, a solution form of the product that Abtrax bought from another company.

In December 1985, Abtrax filed a three-count complaint alleging that Elkins had breached its contract by ceasing to manufacture Gecolate powder without sufficient notice to permit Abtrax to find a new manufacturer (counts one and two). Abtrax further alleged that Elkins had revealed trade secrets to competing manufacturers (count three). Elkins filed an answer and requested production of documents relating to Abtrax's claims. In April 1986, Abtrax responded to Elkins's request by stating, "we have not yet been able to do an accurate calculation of damages although the same will be supplied to you as soon as it is available to us."

After repeated efforts to obtain answers to interrogatories and production of documents relating to Abtrax's alleged damages, Elkins received answers to its interrogatories in November 1986. However, in respect of Elkins's request for copies of correspondence concerning Abtrax's attempts to find other manufacturing sources, Abtrax responded: "to be supplied." Abtrax did not produce the documents that Elkins had requested. After further requests for the production of the documents had proved unavailing, Elkins moved pursuant to Rule 4:23-5(a) to dismiss Abtrax's complaint because timely answers to interrogatories had not been served.

The Law Division denied Elkins's motion, but permitted Elkins's counsel to inspect the requested documents at Abtrax's office. At a discovery session for document production held on February 25, 1987, Abtrax made available inventory sheets, price lists, raw-material costs, and a summary of taxable income, but Abtrax did not produce purchase orders, sales invoices, tax returns, and financial statements. Elkins's counsel certified that Abtrax's former counsel had "advised [him during the document production] that Mr. Rahner did not have sales invoices or purchase orders concerning the Gecolate powder insofar as [they] were either lost or destroyed in a flood at Plaintiff's business premises sometime earlier," noting, however, that Abtrax's former counsel "did agree to make further inquiry into this and provide me * * * with at least representative invoices or whatever additional records could be found." However, Abtrax's former counsel, at his deposition in February 1991, testified:

I don't think I made a statement to that effect. * * * It's possible that something like that was discussed. I believe there may have been a discussion about a flood or records being discussed * * *. [Rahner] may have said there was a destruction of the sales invoices, but not that they were all destroyed.

Moreover, according to Abtrax's former counsel, Elkins's counsel had stated at that document-production session that those documents Abtrax had produced were "exactly what I wanted."

Shortly after the February 25, 1987, production of documents, Elkins's counsel requested by letter that Rahner bring to his deposition scheduled for March 10, 1987, "[r]epresentative copies of billing receipts to [Gecolate-powder] customers 1980, 1981, and 1982, or as best as can be produced." Prior to being deposed, Rahner produced certain financial records, correspondence, inventory sheets, invoices, and purchase orders. At his deposition, Rahner was asked whether he had "produced * * * everything [he had] in the matter," and he responded, "Yes." On further questioning, Rahner stated that he had "[p]roduced everything that was requested." However, Rahner produced copies of the billing receipts of Gecolate-powder sales only for the years 1982 through 1984, whereas Elkins had specifically requested production of the records for the period 1980 through 1982.

In May 1987, Abtrax moved to file an amended complaint to add two counts alleging (1) that Elkins had breached an agreement regarding the use of Abtrax's powder-filling machine, and (2) that Elkins had converted the machine for its own use and the use of its parent company, A.H. Robins. Because that motion had been denied, Abtrax filed a new complaint in June 1987, repeating the three counts in its initial complaint and adding the new counts. By order dated August 14, 1987, the court dismissed without prejudice the original complaint and ordered all completed discovery to be applied to the action initiated by the new complaint.

As the discovery process continued, Elkins attempted to acquire the invoices and purchase orders relevant to Abtrax's sales of Gecolate powder from 1980 to 1982, the years immediately prior to the termination of the agreement between the parties, as well as invoices for all other years through 1986. In February 1988, Elkins filed a notice to produce "[a]ll records, writing, documents, items or other documentation as identified and requested in Defendant's Interrogatories." Elkins's interrogatory question fifty-five read, "State whether you have any files or written documentation whatsoever in any way relating to this law suit [that] you have not produced previously for * * * inspection [and/or] copying." Abtrax responded, "Not to the best of our knowledge. 'Bench Book' will be supplied." Interrogatory question fifty-six stated, "If any such records as requested above exist, describe all such records and if you would do so without an order, attach true and exact copies of same." Abtrax replied, "n/a."

More discovery motions followed, and the trial court issued additional discovery orders. In June 1988, another document-production session took place at Abtrax's office, at which time Abtrax produced financial statements and tax returns but none of the other sales records that had been requested by Elkins.

On August 24, 1988, Rahner was again deposed. Elkins's counsel asked Rahner, "[w]ith respect to those invoices [that] you gave to me, are they all of the invoices you have?" Rahner responded, "We gave you representative amounts, we couldn't possibly find the invoices. It would take us two years to go through thousands and thousands of invoices over a ten year period." Elkins's counsel further asked, "[w]hat about letters, write-ins, requests, purchase orders, et cetera, for [Gecolate powder] during this period of time [when Abtrax had been out of Gecolate powder]?" Rahner answered:

We dumped them after a year so we wouldn't hold them after a while. We dumped all purchase orders from distributors.

* * * * * *

We didn't have them after the first nine to twelve months, we didn't hold them. Everybody is on a computer these days, they wouldn't hold anything like that.

Rahner also testified that his wife had dealt with customers and had been responsible for bookkeeping.

On November 4, 1988, Elkins sent a letter to Abtrax demanding more specific answers to interrogatories and specifically referring to question fifty-five and to the documents that previously had been requested but had not been produced. After receiving follow-up telephone calls, Abtrax responded to that demand by letter dated March 27, 1989, stating, "bench book previously provided."

On March 23, 1989, Elkins issued a notice to take Mrs. Rahner's deposition, requesting that Mrs. Rahner "bring the documents on the Rider annexed hereto." The Rider attached to the notice requested production of the following:

1. Copies of all financial records in any way pertaining to Gecolate Powder, including but not limited...