Eli Lilly & Co. v. Sav-On Drugs, Inc.

• Decision Date: 29 September 1959
• Docket Number: SAV-ON,No. C--2465,C--2465
• Citation: 57 N.J.Super. 291,154 A.2d 650
• Parties: ELI LILLY AND COMPANY, a corporation of the State of Indiana, Plaintiff, v.DRUGS, INC., a corporation of the State of New Jersey, Defendant.
• Court: New Jersey Superior Court

Page 291

57 N.J.Super. 291

154 A.2d 650

ELI LILLY AND COMPANY, a corporation of the State of Indiana, Plaintiff, v. SAV-ON DRUGS, INC., a corporation of the State of New Jersey, Defendant.

No. C--2465.

Superior Court of New Jersey, Chancery Division.

Sept. 29, 1959.

Lorentz & Stamler, Newark (Joseph H. Stamler and Melvin P. Antell, Newark, appearing), for plaintiff.

Lum, Fairlie & Foster, Newark (William F. Tompkins and Warren E. Dunn, Newark, appearing), for defendant.

SCHERER, J.S.C.

Plaintiff is a corporation of the State of Indiana not authorized to transact business in the State of New Jersey. It does not have a certificate from the Secretary of State as required by R.S. 14:15--4, N.J.S.A. It filed the present suit to compel the defnedant to comply with minimum prices defendant to comply with minimum prices in accordance with N.J.S.A. 56:4--3 et seq., generally known as the Fair Trade Act. The facts are substantially undisputed and appear in the affidavits filed by both parties.

Plaintiff is one of the largest dealers of pharmaceutical products in this country, if not in the world, and its products are distributed throughout the United States and in foreign countries. Its office and principal place of business is in Indianapolis, Indiana. Plaintiff's products within the United States are sold to selected wholesale distributors and in interstate commerce. It is said that the business done in New Jersey represents 2.7% Of its domestic sales. Plaintiff does not sell directly to the retail trade, but its products reach the retail trade through wholesale distributors. Plaintiff says that it leases no sales office, owns no real estate, and maintains no warehouse or other place of business in this State. Its products are 'fair traded' in New Jersey under the above cited statute and it claims to have approximately 1,500 contracts in effect in this State signed by retailers of its products, under which these retailers agree to maintain the minimum price structure fixed by plaintiff.

Defendant is a retail drug company with stores in Plainfield and Carteret. Defendant did not sign any contract, but it admits having notice of the fact that plaintiff has fair trade contracts in force and that it is, therefore, bound by the provisions of the Fair Trade Act, unless its other defenses are sustained. Even though a non-signer, defendant must maintain plaintiff's minimum price structure. N.J.S.A. 56:4--6; Lionel Corporation v. Grayson-Robinson Stores, 15 N.J. 191, 104 A.2d 304 (1954), appeal denied 348 U.S. 859, 75 S.Ct. 87, 99 L.Ed. 677 (1954).

The complaint charges that defendant sold plaintiff's products below the minimum prices fixed by it, in that in some instances, while selling at the minimum prices, it gave to its customers 'S. & H. Green Cooperative Cash Discount Stamps,' which are redeemable for merchandise, thus in effect lowering the prices of plaintiff's products below the minimum by the amount of the discount represented by the stamps. Whether this constitutes willfully and knowingly advertising or selling plaintiff's products at less than the prices stipulated by it--which defendant denies--need not be now decided. See E. R. Squibb & Sons and Eli Lilly & Company v. Charline's Cut Rate, Inc., 9 N.J.Super. 328, 74 A.2d 354 (Ch.Div.1950); Bristol-Meyers Co. v. Picker, 302 N.Y. 61, 96 N.E.2d 177, 22 A.L.R.2d 1203 (Ct.App.1950); Bristol-Myers Co. v. Lit Brothers, Inc., 336 Pa. 81, 6 A.2d 843 (Sup.Ct.1939); Weco Products Co. v. Mid-City Cut Rate Drug Stores, 55 Cal.App.2d 684, 131 P.2d 856 (d.Ct.App.1942); Sperry & Hutchinson Co. v. Margetts, 15 N.J. 203, 104 A.2d 310 (1954), affirming 25 N.J.Super. 568, 96 A.2d 706 (1953). Defendant is charged also with violating the minimum price structure by selling other products of the plaintiff below the minimum prices in cases where no stamps were given. Plaintiff originally applied for an interlocutory injunction (R.R. 4:67) to enjoin all sales by defendant below minimum prices until final hearing.

Defendant admitted the sales but denied that in any instance the sales were below minimum prices or that there were any willful and knowing sales below such prices, in violation of N.J.S.A. 56:4--6. With respect to the sales made of products other than those with which stamps were given, defendant states that it made up packages from bulk shipments and that the products of plaintiff were packaged under defendant's name and, therefore, they were exempt under the provisions of N.J.S.A. 56:4--5(1). It is doubtful that this constitutes a good defense because the bottle which was marked in evidence clearly disclosed that the plaintiff's name and trademark appeared on the label, and defendant was obviously seeking to gain the benefit of plaintiff's good will. This may not be done. Johnson & Johnson v. Weissbard, 121 N.J.Eq. 585, 586, 191 A. 873 (E. & A. 1937).

The substantial defense interposed is that plaintiff, being a foreign corporation, was required as a condition precedent to transacting business in this State to file with the Secretary of State, under R.S. 14:15--3, N.J.S.A., a copy of its certificate of incorporation and a statement providing information required by that section, and, as a preliminary to instituting suit in this State 'upon any contract made by it in this state,' was required to obtain a certificate from the Secretary of State under R.S. 14:15--4, N.J.S.A. It is conceded that neither of the last cited sections has been complied with by the plaintiff.

Plaintiff's application for an interlocutory injunction was denied on the ground that its right to relief was not clear as a matter of law, in view of the above mentioned legal defenses. General Electric Co. v. Gem Vacuum Stores, 36 N.J.Super. 234, 115 A.2d 626 (App.Div.1955); Wilentz v. Crown Laundry Service, Inc., 116 N.J.Eq. 40, 172 A. 331 (Ch.1934); Allman v. United Brotherhood of Carpenters & Joiners of America, 79 N.J.Eq. 150, 155, 81 A. 116 (Ch.1911).

The matter is now before the court on defendant's motion to strike the complaint and for summary judgment on the ground that the plaintiff is transacting business in this State contrary to R.S. 14:15--3, N.J.S.A. and, being a foreign corporation, is precluded from bringing this action under R.S. 14:15--4, N.J.S.A. As an integral part of these defenses, the defendant urges the provisions of R.S. 14:15--5, N.J.S.A. where it is provided as follows:

'Obligations imposed on domestic corporations doing business in foreign states imposed on foreign corporations

'When, by the laws of any other state or nation, any other or greater taxes, fines, penalties, licenses, fees or other obligations or requirements are imposed upon corporations of this state, doing business in such other state or nation, or upon their agents therein, than the laws of this state impose upon their corporations or agents doing business in this state, so long as such laws continue in force in such foreign state or nation, the same taxes, fines, penalties, licenses, fees, obligations and requirements of whatever kind shall be imposed upon all corporations of such other state or nation doing business within this state and upon their agents here, but nothing herein shall be held to repeal any duty, condition or requirement now imposed by law upon such corporations of other states or nations transacting business in this state.'

The State of Indiana has a similar statute, and the requirements of that state upon foreign corporations are much more onerous than those imposed by our statute. The Indiana statute (Burns' Annotated Statutes of Indiana, 25--314) provides 'Penalties. No foreign corporation transacting business in this state without procuring a certificate of admission or, if such a certificate has been procured, after its certificate of admission has been withdrawn or revoked, Shall maintain any suit, action or proceeding in any of the courts of this state upon any demand, whether arising out of contract or tort; and every such corporation so transacting business shall be liable by reason thereof to a penalty of not exceeding ten thousand dollars ($10,000), to be recovered in any court of competent jurisdiction in an action to be begun and prosecuted by the attorney-general in any county in which such business was transacted.

'If any foreign corporation shall transact business in this state without procuring a certificate of admission, or, if a certificate has been * * * withdrawn or revoked, or shall transact any business not authorized by such certificate, such corporation Shall not be entitled to maintain any suit or action at law or in equity upon any claim, legal or equitable, whether arising out of contract or tort, in any court in this state; and it shall be the duty of the attorney-general, upon being advised that any foreign corporation is so transacting business in this state, to bring action in the circuit or superior court of Marion County for an injunction to restrain it from transacting such unauthorized business and for the annulment of its certificate of admission, if one has been procured. * * *.' (Emphasis supplied.)

Plaintiff argues that it is not doing business in this State and that, even if it be held that it is, the above cited provisions of our Corporation Act do not apply to it because its goods are distributed solely in interstate commerce, thus exempting it, from the provisions of any regulatory state statute of the kind above quoted, and that to apply to it the provisions of R.S. 14:15--3, 4 and 5, N.J.S.A. is to impose a burden upon interstate commerce which is forbidden by the commerce clause of the Federal Constitution (U.S.Const. Art. I, § 8, clause 3).

Plaintiff countered the motion to dismiss with a renewal of its motion for interlocutory injunction on the ground that, if the defendant's motion should be denied, then plaintiff's motion should be granted because then its right to relief as a matter of law would be clear, thus...