Hospital Products, Inc. v. Sterile Design, Inc.

• Decision Date: 04 April 1990
• Docket Number: No. 88-1186C(1).,88-1186C(1).
• Citation: 734 F. Supp. 896
• Parties: HOSPITAL PRODUCTS, INC., Plaintiff, v. STERILE DESIGN, INC., Defendant.
• Court: U.S. District Court — Eastern District of Missouri

734 F. Supp. 896

HOSPITAL PRODUCTS, INC., Plaintiff, v. STERILE DESIGN, INC., Defendant.

No. 88-1186C(1).

United States District Court, E.D. Missouri.

April 4, 1990.

COPYRIGHT MATERIAL OMITTED

Mitchell Kramer, Philadelphia, Pa., J. Peter Schmitz, Biggs & Hensley, St. Louis, Mo., for plaintiff.

J. William Newbold, Coburn, Croft & Putzell, St. Louis, Mo., for defendant.

MEMORANDUM

NANGLE, Chief Judge.

This matter is now before the Court on defendant's motion for summary judgment on Counts I, II and III of plaintiff's complaint.

I. Facts

The following facts are undisputed:

In February of 1982, Hospital Products, Inc., ("Hospital Products") entered into a contract with Custom Hospital Products, Inc., ("Custom Products") wherein the parties to the contract agreed that Hospital Products would serve as Custom Products' sales representative for products manufactured by Sterile Design, Inc. ("Sterile Design"). Hospital Products is a subchapter S corporation whose only shareholders are John Dockery and Terry Penke. Custom Products was a distributor for Sterile Design's products. Sterile Design is a manufacturer of medical surgical procedure trays and other health care products. Specifically, the contract between Hospital Products and Custom Products provided that Hospital Products was to serve as the exclusive representative for Sterile Design's products in the states of Iowa and Nebraska for a period of ten years, subject to a one year "trial period", which was to end January 31, 1983. Hospital Products was to receive a sales commission for all sales of Sterile Design Products within the designated territory.

Hospital Products completed its one-year trial period. In November of 1984, Custom Products entered into a merger agreement with a wholly owned subsidiary of Sterile Design, wherein Sterile Design agreed to assume all debts, liabilities and duties of Custom Products — including the contract between Custom Products and Hospital Products.¹ Said merger was completed in the fall of 1986.

Also in 1984, Hospital Products "went dormant". It filed only partial tax returns in 1984 and filed no tax returns in 1985, 1986 and 1987. Furthermore, Hospital Products' accountant and its sole shareholders, Mr. Dockery and Mr. Penke, indicate that corporate tax returns were not filed for 1988 and would not be filed for future years because as of 1984, Hospital Products ceased to realize income or incur expenses.

Defendant explains through its various submissions to the Court, and plaintiff has not denied, that in mid-1984 Dockery and Penke ceased to "run their money through" Hospital Products, Inc. Originally, Dockery and Penke had placed all money that they received from Sterile Design into Hospital Products. They had then paid their expenses and taken equal amounts from the balance that remained at the end of each month. In 1984, however, they decided that they wished to be paid for their individual sales rather than splitting the proceeds from their collective efforts. Therefore, Dockery and Penke formed their own separate corporations to sell a variety of hospital products, including those of Sterile Design. Dockery formed Master Medics, Inc. Penke carried on as Terry Penke, d/b/a Hospital Products, Inc., for a short time and then formed Terry Penke & Associates, Inc.

In November of 1987, Sterile Design terminated its contract with Hospital Products. Approximately four years and three months remained under the original ten-year term. In June of 1988, Hospital Products filed the instant action against Sterile Design alleging that by breaching its exclusive sales representative contract with Hospital Products, Sterile Design deprived Hospital Products of commissions, profits, good will, customer access, business advantage and identity, and revenue (Count I); that Sterile Design had deprived Hospital Products of commissions on long-term contracts with hospitals in the region, which contracts Hospital Products had obtained on behalf of Sterile Design (Count II) and; that Sterile Design failed to pay Hospital Products commissions earned by Hospital Products prior to the date of termination (Count III).²

Sterile Design has filed motions for summary judgment in supplements. Sterile Design's first motion for summary judgment asserts that Sterile Design was entitled to terminate its contract with Hospital Products because Hospital Products failed to meet its minimum sales goal under the contract and because Hospital Products breached its agreement under the contract not to promote products other than those of Sterile Design. Subsequently, Sterile Design filed a supplemental motion for summary judgment on the basis that because Hospital Products received no income and incurred no expenses for the years immediately preceding and following the termination of the contract, Hospital Products can make no submissible case of damages as a matter of law. Most recently, Sterile Design has filed a "second supplemental motion for summary judgment," wherein Sterile Design argues that it was entitled to terminate its contract with Hospital Products under a contractual provision providing for automatic termination in the event that Hospital Products ceased to function as a "going concern". The Court will discuss the merits of each of defendant's grounds for summary judgment individually.

II. Summary Judgment Standard

In determining whether summary judgment should issue, the facts and inferences from these facts are viewed in the light most favorable to the non-moving party and the burden is placed on the moving party to establish both the absence of a genuine issue of material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Once the moving party has met this burden, however, the non-moving party may not rest on the allegations in its pleadings but by affidavit and other evidence must set forth specific facts showing that a genuine issue of material fact exists. Fed.R. Civ.P. 56(e). See also 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2739 (1983).

In Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) the United States Supreme Court held that a party seeking summary judgment need not "support its motion with affidavits or other similar materials negating the opponent's claim." Id. at 323, 106 S.Ct. at 2552. When, however, the non-moving party will bear the burden of proof at trial with respect to a disputed issue, that party must come forward with the kinds of evidentiary materials listed in Rule 56(c) to avoid summary judgment. Id. at 324, 106 S.Ct. at 2553. Rule 56(c) lists depositions, answers to interrogatories, admissions on file and affidavits as evidence beyond the pleadings that may be used to defeat a motion for summary judgment. Rule 56(c) Fed.R. Civ.P. If, after discovery, a party is unable to produce sufficient evidence to carry its burden of proof at trial, summary judgment is appropriate. Palmer v. Tracor, Inc., 856 F.2d 1131, 1133 (8th Cir.1988).

Recently, the Supreme Court noted that: "Summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the federal rules as a whole, which are designed to `secure the just, speedy and inexpensive determination of every action'." Celotex, 477 U.S. at 327, 106 S.Ct. at 2554 (quoting Fed.R.Civ.P. 1). Thus the non-moving party "must do more than show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355. "Where the record as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial'." Id. at 587, 106 S.Ct. at 1356. The Eighth Circuit has acknowledged that the "trilogy of recent Supreme Court opinions" demonstrates that the courts should be "more hospitable to summary judgments than in the past" and that a motion for summary judgment "can be a tool of great utility in removing factually insubstantial cases from crowded dockets, freeing courts' trial time for those cases that really do raise genuine issues of material fact." City of Mt. Pleasant, Iowa v. Associated Electric Cooperative, Inc., 838 F.2d 268, 273 (8th Cir.1988).

III. Hospital Products' Failure to Meet its 1987 Quota

The parties' agreement provides that plaintiff will be deemed to have breached the agreement and defendant is entitled to terminate the agreement in the event that plaintiff's annual sales fall below eighty percent of its "sales goal". The agreement defines Hospital Products' "sales goal" as a minimum annual goal setting the total dollar amount of products to be sold in Hospital Products' territory in a given year. In the event that Hospital Products fails to achieve eighty percent of the sales projected in Hospital Products' yearly goal, Sterile Design may terminate the agreement for "just cause". Sterile Design argues that the principals of Hospital Products, Dockery and Penke, obtained only 58 and 50 percent, respectively, of their individual sales goals for the 1987 fiscal year. Sterile Design concludes that Hospital Products therefore fell short of the eighty percent requirement, thereby entitling Sterile Design to terminate the agreement.

The Court finds that no question exists but that plaintiff failed to achieve its 1987 sales goal. Although plaintiff offers evidence that Dockery and Penke satisfied their 1986 quota, it offers no evidence suggesting that Hospital Products achieved its 1987 quota. By contrast, defendant has produced the deposition of Sterile Design's North Central Region Manager, which states that the...