Bristol Lab. Div. of Bristol-Myers Co. v. Staats, 75 Civ. 1334.

• Decision Date: 08 April 1977
• Docket Number: No. 75 Civ. 1334.,75 Civ. 1334.
• Citation: 428 F. Supp. 1388
• Parties: BRISTOL LABORATORIES DIVISION OF BRISTOL-MYERS COMPANY, Plaintiff, v. Elmer B. STAATS, Comptroller General of the United States, Defendant, and United States of America, Intervenor-Defendant.
• Court: U.S. District Court — Southern District of New York

428 F. Supp. 1388

BRISTOL LABORATORIES DIVISION OF BRISTOL-MYERS COMPANY, Plaintiff, v. Elmer B. STAATS, Comptroller General of the United States, Defendant and United States of America, Intervenor-Defendant.

No. 75 Civ. 1334.

United States District Court, S. D. New York.

April 8, 1977.

Weil, Guttman & Davis, New York City, for plaintiff; Gilbert H. Weil, Robert L. Sherman, New York City, of counsel.

Robert B. Fiske, Jr., U. S. Atty., S. D. N. Y., New York City, for defendant and intervenor-defendant; Naomi Reice Buchwald, Asst. U. S. Atty., New York City, J. Roger Edgar, Dept. of Justice, John Brosnan, of counsel.

MEMORANDUM

LASKER, District Judge.

This case arises out of a dispute between Bristol Laboratories Division of Bristol-Myers Company (Bristol) and Elmer B. Staats, Comptroller General of the United States, regarding the scope of Staats' contractual right to inspect Bristol's books and records. Bristol and the United States, as intervenor-defendant, seek a declaration of their respective rights and a corresponding injunction. The parties have renewed cross-motions for summary judgment.¹ Since no disputed issues of fact remain, the case is ripe for determination.

In 1973 and 1974 Bristol was awarded three negotiated fixed-price contracts for the sale of prescription drugs to the Defense Supply Agency. Pursuant to the provisions of 10 U.S.C. § 2313(b)² all three contracts contain a so-called access to records clause, which in pertinent part provides:

"Bristol agrees that the Comptroller General of the United States or any of his duly authorized representatives shall, until the expiration of three years after final payment under this contract . . have access to and the right to examine any directly pertinent books, documents, papers, and records of Bristol involving transactions related to such contract."

In 1973 Bristol obtained a similar contract with the Veterans Administration which, pursuant to 41 U.S.C. § 254(c),³ contains an identical access to records clause. Final payment on all of these contracts was complete by the end of July, 1974.

By letter dated August 26, 1974 Staats formally requested Bristol to make available to him cost records relating to the four contracts. He explained that the request was one of several directed at companies which supply pharmaceuticals to federal government agencies as part of a general review of drug procurement being undertaken by the General Accounting Office (GAO). He alluded to recent attempts by the GAO to conduct a comprehensive study of pricing practices in the pharmaceutical industry and the refusal of the drug manufacturers voluntarily to supply the information requested. Staats specified that he wished to inspect certain records including

". . . but not limited to (1) records of experienced costs including costs of direct materials, direct labor, overhead, and other pertinent corporate costs, (2) support for prices charged to the Government, and (3) such other information as may be necessary for use to review the reasonableness of the contract prices and the adequacy of the protection afforded the Government's interests." (Staats Letter, August 26, 1974; Exhibit A, Weil Affidavit).

Bristol responded that it was agreeable to providing records "deemed pertinent" to the contracts. (Purdy Letter, September 13, 1974; Exhibit B, Weil Affidavit) In the ensuing months, however, after further correspondence and meetings between GAO and Bristol personnel, it became apparent that there were irreconcilable differences regarding the proper scope of the GAO review. The differences focus on the GAO's right to examine records pertaining to the costs of research and development, marketing and promotion, distribution and administration.

Bristol agrees that it is obliged by the terms of the contracts to provide access to records of its manufacturing costs, records which relate to the pricing of the products delivered and records required to verify all data obtained during the course of the review. Accordingly, Bristol states that it is ready and willing to allow GAO personnel to inspect its books and records with regard to the following items, which it lists as factors taken into account in setting prices to the government: manufacturing costs (including raw and packaging materials, labor and fringe benefits, quality control and supervision); manufacturing overhead (including plant administration, production planning, warehousing, utilities and security); royalty expenses; and delivery costs. However, it strenuously resists producing data with respect to research and development, marketing and promotion, distribution and administration (except to the extent that these areas may be included in the factors listed above), because it claims that these costs are too remote to the contracts and have only the most general relation, if any, to the prices charged.

The United States insists that the GAO may inspect Bristol's records with respect to any and all costs met in whole or in part from revenues earned on the federal contracts, whether or not those costs are specifically assigned by Bristol to the contracts or the products delivered. According to the government the test is simply "whether the burden of the costs is borne by the Government in the prices it must pay for the contract items." (Government's Memorandum, August 29, 1975 at 13)

The Government's theory has far reaching implications. The only items excludable from the Comptroller General's reach would be those, if any, which relate to costs recovered exclusively from non-government contracts. (Government's Memorandum, August 29, 1975 at 13) It is undisputed, however, that Bristol does not separately compute the cost of government and non-government contracts or pay for them out of separate funds. Accordingly, there are no excludable records under the Government's theory. Indeed, the company does not compute the costs attributable to any particular contract. It does allocate certain direct costs, for manufacturing and overhead, by product. Records of these expenses are thus readily available and are among those the company concedes to be discoverable. Its other expenses are not allocated at all; they are pooled and met out of gross revenues. In other words, revenues from government contracts are co-mingled with revenues from non-government contracts, and the resulting fund is used to pay for all expenses. If the government's interpretation of the access to records clause is correct, Bristol will be required to make available...