Med-Sales Associates, Inc. v. Lebhar-Friedman, Inc., 86 Civ. 1560 (RWS).

• Decision Date: 30 June 1987
• Docket Number: No. 86 Civ. 1560 (RWS).,86 Civ. 1560 (RWS).
• Citation: 663 F. Supp. 908
• Parties: MED-SALES ASSOCIATES, INC., Plaintiff, v. LEBHAR-FRIEDMAN, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

663 F. Supp. 908

MED-SALES ASSOCIATES, INC., Plaintiff, v. LEBHAR-FRIEDMAN, INC., Defendant.

No. 86 Civ. 1560 (RWS).

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

June 30, 1987.

Stroock & Stroock & Lavan, New York City (Curtis C. Mechling, Elizabeth A. Mullins, Ellyn C. Lambert, of counsel), for plaintiff.

Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, New York City (Michael A. Bamberger, Shirley Adelson Siegel, Avrom E. Greenberg, of counsel), for defendant.

OPINION

SWEET, District Judge.

This motion arises out of plaintiff Med-Sales Associates ("Med-Sales") libel suit against defendant Lebhar-Friedman ("Lebhar"). Lebhar has moved pursuant to Fed. R.Civ.P. 56 for an order dismissing the complaint. For the reasons stated below, the motion is granted and the complaint dismissed.

Facts

The U.S. House of Representatives Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce (the "Subcommittee") held a public hearing on July 10, 1985 in Washington, D.C. on the subject of "Prescription Drug Diversion and Counterfeiting."

A preliminary report by the staff of the Subcommittee, entitled "Drug Diversion — Prescription Drug Diversion and The American Consumer: What You Think You See May Not Be What You Get," (the "Staff Report") was released to the public at the hearing. Pages 14 through 21 of the Staff Report are titled "The Operation of the Diversion Market." At the bottom of page 19 and continuing at the top of page 20, after describing on page 19 "a recent example ... found in a criminal prosecution of one Jack Randell, president and sole shareholder of Audit Data Inc., ... indicated as the prime mover of a scheme that defrauded pharmaceutical manufacturers of approximately $3,400,000," the report read:

One of the principal purchasers of the diverted goods was Med Sales, a Hollywood, Florida wholesaler. Med Sales was one of the wholesale pharmaceutical companies that were known to deal in diverted merchandise ...

Med-Sales is engaged in the business of wholesale distribution of pharmaceutical products. Immediately after this mention of Med-Sales, the Staff Report gives examples of how the counterfeit drug Ovulen 21 moved through the diversion market. Specific mention was made in the course of a page and a half of the following firms: American Medic Sales, Inc., Marchar Laboratories, Lantor Corporation, Interstate Drug Exchange, Interstate Cigar Corporation and Quality King Distributors.

The opening statement of the Chairman of the Subcommittee, Honorable John D. Dingell, which was read at the hearing on July 10, after alluding to release of the preliminary report and to the convening of further hearings, stated in part:

The subcommittee had hoped to take testimony from industry and Government personnel familiar with recent drug diversion cases, such as the introduction into the U.S. domestic market of counterfeit Ovulen-21 birth control pills. However, because this and other cases remain the subject of active criminal investigation, the subcommittee has deferred public exploration of these matters. We have been assured that several criminal cases will have been completed, or at least entered the public stage, by this fall.

At the time of the July 10, 1985 hearing, Lebhar-Friedman was the publisher of a biweekly newsletter called Washington Distribution Pipeline, which was published pursuant to a joint venture agreement with Wordpower, Inc. and Kenneth Rankin, its president. Wordpower and Rankin were "exclusively and completely responsible for providing editorial and news copy" sufficient for a newsletter at least four pages in length and Lehbar was responsible for promotion, publication and distribution.

The July 15, 1985 issue of Washington Distribution Pipeline, Vol. 1 issue 21, carried the following item:

CRIMINAL CHARGES AGAINST `SEVERAL' OVULEN 21 Rx DRUG COUNTERFEITERS and/or diverters will surface publicly this fall, House Energy and Commerce Committee Chairman John Dingell (D-Mich.) predicted at the kick-off of new hearings into last year's discovery of bogus Searle birth control pills in the nation's drug supply. Among the loose ends left dangling by Dingell: the identity of the Panamanian connection which produced the counterfeit oral contraceptives; and whether charges will be brought against U.S. drug wholesalers (Interstate Cigar, Interstate Drug Exchange, Lantor, Quality King, Med-Sales, Marchar, American Medic Sales, etc.) who served as middlemen for the phony Searle OCs.

Subcommittee investigators, meanwhile, linked the Ovulen counterfeiting episode to the broader "problem" of Rx drug diversion. "The primary reason that counterfeits like Ovulen 21 could easily be introduced into the distribution system is the existence of what is referred to as the diversion market," they told Dingell. Because of diverters, "American consumers cannot purchase the products are safe and effective." But who's to blame for the diverters? Check out WDP's related story on page 2.

The piece was written personally by Kenneth Rankin, who had attended the July 10 hearing and obtained a copy of the Staff Report released at that time. Rankin spoke with subcommittee staff members at the hearing before he wrote the article. Neither he nor Lebhar called the Congressional staff, federal prosecutors or Med-Sales itself to verify the piece after it had been written. Rankin's article accurately reflected the Staff Report's list except for the erroneous inclusion of Med-Sales.

The July 29, 1985 issue of Washington Distribution Pipeline, Vol. 1 issue 22, carried the following correction:

C-O-R-R-E-C-T-I-O-N: MED-SALES WAS NOT FINGERED AS A SOURCE OF COUNTERFEIT DRUGS by investigators for Rep. John Dingell's (D-Mich) House subcommittee as suggested in WDP's July 15 issue. The Hollywood, Fla. drug wholesaler was incorrectly included in the list of several Rx distributors identified in the subcommittee's report as alleged middlemen in the distribution of bogus Ovulen 21 oral contraceptives last year.

On July 30, 1985 defendant wrote to plaintiff it "deeply regretted" that Med-Sales was "incorrectly included" in the July 15 issue as an alleged middleman in the distribution of counterfeit Ovulen 21 tablets, and explained the confusion as a result of mention of Med-Sales in that section of the Subcommittee's Staff Report.

Rankin has been a news reporter for twenty years, and during that period has researched and written in excess of 4,000 news and feature articles on government activities for a variety of business publications. For at least the past fifteen years he has been a member in good standing of the U.S. Senate and House Periodical Press Galleries, and he continues to hold Congressional press credentials.

In addition to Washington Pipeline, Lebhar published a number of other periodicals, including Inside Pharmacy and Drug Store News. Med-Sales has submitted some twenty articles from these two publications on the subject of drug diversion. The vast majority of the articles report on Congressional hearings on drug diversion, state citations issued against pharmacists or wholesalers who participated in drug diversion, legislation against drug diversion, or statements by law enforcement officials regarding probes into drug diversion. Med-Sales has not charged that there was an inaccuracy in these articles, and it is self-apparent that government action in this sphere would be of interest to the audience of Inside Pharmacy and Drug Store News. Med-Sales has also adduced evidence to the effect that advertising by prescription drug manufacturers — whom Med-Sales deems "the principal competitors of the secondary source suppliers" — accounts for somewhat less than 20% of advertising in Drug Store News. According to Med-Sales, this level of advertising plus the number of articles covering government action against drug diversion is sufficient for a factfinder to infer Lebhar's recklessness in publishing Rankin's article.

Finally, Med-Sales points to passages in Rankin's deposition testimony to establish his bias against Med-Sales. Rankin testified that at the time that he wrote his article, he believed Med-Sales to be a drug diverter. In addition, he testified as follows:

Q. At the time you wrote this article, Mr. Rankin, in your mind did you recognize that the existence of drug diversion in the American marketplace posed a problem to American consumers?

A. Well, as I said, yes. There are problems posed by both diverted pharmaceuticals and pharmaceuticals through legitimate channels and there are advantages to consumers as a result of diversion, including lower pharmaceutical prices. And there are disadvantages to the so-called legitimate distributions of the pharmaceuticals, including often far higher prices.

The following exchange took place also:

Q. At the time you wrote the article ... were you aware of allegations that organized crime was involved with some drug diverters?

A. I believe so. I believe that this information came from the same staff report, or these allegations came from the same staff report.

Q. And in your mind was organized crime involvement with drug diverters a good thing or a bad thing?

A. Well, are you saying there was organized crime involvement?

Q. If there was, was it good or was it bad? I'll withdraw the question.

A. I'd like to answer that one. I will go on record as saying an organized crime involvement with drug diverters, lawyers, or anything else is bad. (emphasis added)

Med-Sales is a corporation organized under the laws of the State of Florida with its principal place of business in Florida. Lebhar is alleged to be a corporation organized under the laws of a state other than Florida with its principal place of business in the Southern District of New York.

Status of the Parties

Two of the legal issues raised by parties will not be decided, because assuming arguendo that Med-Sales prevails with respect to them, it has, nonetheless,...