CR Bard, Inc. v. Medical Electronics Corp.

• Decision Date: 21 January 1982
• Docket Number: Civ. A. No. 81-1332-G.
• Citation: CR Bard, Inc. v. Medical Electronics Corp., 529 F. Supp. 1382 (D. Mass. 1982)
• Parties: C. R. BARD, INC., Plaintiff, v. MEDICAL ELECTRONICS CORPORATION, Defendant.
• Court: U.S. District Court — District of Massachusetts

529 F. Supp. 1382

C. R. BARD, INC., Plaintiff, v.MEDICAL ELECTRONICS CORPORATION, Defendant.

Civ. A. No. 81-1332-G.

United States District Court, D. Massachusetts.

January 21, 1982.

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Stephen D. Anderson, Palmer & Dodge, Boston, Mass., for plaintiff.

David Roseman, Terrance J. Hamilton, Chaplin, Casner & Edwards, Boston, Mass., for defendant.

MEMORANDUM AND ORDERS ON MOTIONS FOR SUMMARY JUDGMENT AND DISMISSAL

GARRITY, District Judge.

This case arises out of the termination of a distributorship agreement between William Harvey, a division of manufacturer C. R. Bard, Inc., the plaintiff, and distributor Medical Electronics Corp.(MEC), the defendant.Bard seeks to recover damages of $137,525.14 for goods sold and delivered to, but not paid for by, defendant, plus interest and reasonable attorneys' fees.MEC, the buyer, counterclaims on five grounds relating to the alleged breach of the distribution agreement.

Without reciting all the facts of this case, we sketch relevant background.Plaintiff Bard, a leading manufacturer of medical equipment, through its William Harvey division, entered into a Manufacturer-Distributor Agreement on May 1, 1980.Under the agreement, which ran for 10 pages absent exhibits, Harvey agreed to sell its products to defendant MEC at net prices as set by Harvey.Harvey retained the right to sell its products directly to other distributors and users or engage other distributors without regard to geographic location.MEC agreed to purchase an annual minimum, and agreed to various clauses relating to inventory maintenance, promotion, and provision of credit information.The agreement was for a 6-month term and was renewed automatically unless a party gave written notice of termination 15 days in advance of the expiration date.Harvey was also authorized to terminate in various other circumstances, including default of MEC in payment according to terms.Between January 19, 1981 and March 19, 1981 Harvey delivered and sold MEC goods valued at $153,852.75.With freight charges included, and certain adjustments, the bill came to $155,906.29.After MEC returned some inventory to Harvey the bill was reduced to its present amount — $137,525.14.On March 9, 1981, Harvey notified MEC in writing of its decision to terminate the distribution agreement.By letter 11 days later, MEC notified Harvey of its intention, pursuant to U.C.C. § 2-717, "to withhold and offset all sums due Harvey under the Agreement."MEC alleged that Harvey had breached the implied covenant of good faith and fair dealing by enticing MEC's regional salesman, Ron Whitfield, to work directly for Harvey, and by falsely advising MEC earlier in 1981 that the agreement would be renewed.Bard and Harvey denied these allegations.

Bard filed suit on May 7, 1981 in Suffolk Superior Court.MEC removed the action to federal district court and filed its counterclaim.The action is within the diversity jurisdiction of the court and the amount in controversy exceeds $10,000.

Plaintiff moved a) for summary judgment and entry of final judgment on its contract claim, and b) for dismissal of Counts IV and V of defendant's counterclaim.The court heard oral argument on December 21, 1981 on those motions which we discuss and decide in turn.

Plaintiff's Motion for Summary Judgment and Entry of Final Judgment

Summary judgment is proper when 1) "specified filings reveal no genuine issue as to any material fact" and 2) "the moving party is entitled to a judgment as a matter of law."Federal Rule of Civil Procedure 56(c).MEC's admissions establish that it purchased goods from Harvey valued at $137,525.14 for which it has not paid.These admissions would entitle Bard to summary judgment absent a valid defense supported by a statement of "specific facts showing that there is a genuine issue for trial."Fed.Rule Civ.Pro. 56(e).Defendant MEC raises eight affirmative defenses: failure to state a claim, violation of the Massachusetts antitrust statuteG.L. c. 93, violation of the Massachusetts statute proscribing unfair practices, G.L. c. 93A, § 2, estoppel, justification, impossibility, violation of the duty of good faith imposed by the Uniform Commercial Code, and willful violation of the distribution agreement by plaintiff.¹In light of defendant's admissions, the defense of failure to state a claim is clearly frivolous.The "antitrust defense" is generally unsuccessful when raised by a purchaser in a suit against him for the agreed price of goods sold.Kelly v. Kosuga,1959, 358 U.S. 516, 518, 79 S.Ct. 429, 430, 3 L.Ed.2d 475, Gutor International AG v. Raymond Packer Co., Inc.,1 Cir.1974, 493 F.2d 938, 946-47, and has been limited to circumstances where the violation of the antitrust act inheres in the sale, Dickstein v. du Pont,1 Cir.1971, 443 F.2d 783, 786-87, a situation clearly absent here.MEC relies on the Massachusetts Antitrust Act, rather than the Sherman Act, for its antitrust defense.Since the Massachusetts statute provides that it shall be construed in harmony with the Sherman Act, the federal cases cited represent principles applicable to the state act as well.

MEC's "principle defense" is that Bard breached the agreement by failing to act in good faith and to deal fairly as required by §§ 1-203and2-717 of the Uniform Commercial Code and by Fortune v. National Cash Register,1977, 373 Mass. 96, 364 N.E.2d 1251.²Specifically, MEC alleges that 1) a Bard sales manager failed to support MEC, 2) Bard tried to lure away MEC's key sales manager, and 3) Bard, shortly before terminating the distributorship agreement, assured MEC that the relationship would continue as long as sales goals were met.These allegations, even if true, are insufficient to establish a defense to plaintiff's contract claim.

The U.C.C. § 1-203, as adopted byMassachusetts, G.L. c. 106, § 1-203, provides:

Obligation of Good Faith.Every contract or duty within this chapter imposes an obligation of good faith in its performance or enforcement.

Although the precise contours of "good faith" as used in the U.C.C. are unclear, see Gillette, "Limitations on the Obligation of Good Faith,"Duke Law Journal(1981) 619-665, defendant assigns the concept too broad a reach.The U.C.C. defines "good faith" as "honesty in fact in the conduct or transaction concerned."G.L. c. 106, § 1-201(19).Here the "transaction concerned" in Bard's complaint is the sale of the goods for which MEC has not paid and Bard quite clearly had the good faith duty the U.C.C. imposes regarding that sale.

But MEC here alleges, as its defense to Bard's action for the price of the goods sold and delivered, not that Bard failed to act in good faith regarding the sale of those goods but rather that Bard failed to act in good faith regarding the larger distributorship agreement.The theory underlying that defense is too broad.Absent some bad faith by Bard in the sale of the goods itself, MEC lacks a good faith defense under the U.C.C. to Bard's claim for the price.

The cases which defendant cites in its brief, Fortune v. National Cash Register, supra, and at oral argument, Gram v. Liberty Mutual Insurance Co.,___ Mass. ___, 1981 Mass.Adv.Sh. 2287, 429 N.E.2d 21(1981), do not help MEC's defense against Bard's claim.To begin with, those cases did not construe the U.C.C. but rather involved common contract law in the employment context.Moreover, those cases are clearly distinguishable.

Fortune held that a contract for employment at will was breached, under the facts of that case, when an employer terminated a salesman who was compensated on a commission basis in order to avoid paying the salesman future commissions due for contracts the employee had recently arranged.Moreover, Fortune held that the salesman could sue the employer to recover damages for an employer's breach of that good faith covenant.Fortune explicitly did not reach the question whether every contract contains an implied covenant of good faith and fair dealing.Fortune v. National Cash Register, supra373 Mass. at 104, 364 N.E.2d 1251, Gram v. Liberty Mutual Ins. Co., supra___ Mass. at ___-___ 1981 Mass. Adv.Sh. at 2294-2295, 429 N.E.2d 21.In Gram, the S.J.C. declined "to adopt a general rule that the discharge of an at-will employee without cause is alone a violation of an employer's obligation of good faith and fair dealing", but held that "the obligation of good faith and fair dealing imposed on an employer requires that the employer be liable for the loss of compensation that is so clearly related to an employee's past service, when the employee is discharged without good cause."Ibid. at ___-___, 2299-2300, 429 N.E.2d 21.Fortune and Gram may be relevant, and helpful, to defendant's counterclaim for violation of the distributorship agreement.But, since neither held that an employer's breach of contract afforded the employee a defense to obligations unrelated to that breach, they are not helpful as defenses to Bard's contract action.

MEC's remaining defenses — estoppel, justification, excuse, plaintiff's alleged unfair practices, and its alleged willful violation of the contract — rely on the same facts as the good faith defense.Even if MEC properly stated facts sufficient to set out each element of those defenses, it still would lack a defense to Bard's claim since those theories, like the good faith defense, address the termination of the distributorship agreement rather than the actual sale of the goods.

MEC also claims that the U.C.C. § 2-717, as incorporated in Massachusetts law, G.L. c. 106, § 2-717, authorizes it to withhold payment for the goods received.That statute provides:

Deduction of Damages from Price.The buyer on notifying the seller of his intention so to do may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.

Defendant, as § 2-717 requires,...