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Fleischer v. James Drug Stores Inc.

Decided: November 22, 1948.

NATHAN FLEISCHER, COMPLAINANT-APPELLANT,
v.
JAMES DRUG STORES, INC., MAX EDLIN AND LOUIS GARAWITZ, DEFENDANTS-RESPONDENTS



On appeal from an order of the late Court of Chancery striking out the bill of complaint.

For reversal: Chief Justice Vanderbilt, and Justices Case, Heher, Burling, and Ackerson. For affirmance: Wachenfeld. The opinion of the court was delivered by Heher, J.

Heher

The case is here under Article XI, section IV, paragraph 8 of the Constitution of 1947 and chapter 367 of the Pamphlet Laws of 1948.

The suit is for specific performance and for discovery and an accounting and damages.

The learned Vice Chancellor dismissed the bill upon these grounds: that specific performance will not be decreed where "the contract or duties to be performed are continuous;" that even where performance by the defendant "does not present great difficulties of superintendence," specific performance will be denied "if performance by the complainant cannot be assured;" and that here equity "could not enforce 'cooperation' by complainant or aggressive selling of defendant's merchandise, etc." Complainant was remitted to his action at law for damages. The principle of the case of Danforth v. Philadelphia & Cape May Short Line Ry. Co., 30 N.J. Eq. 12 (Ch. 1878) was invoked. Thus we are brought to a consideration of the contract and the case made by the bill.

The contract is essentially cooperative, designed to place the participating operators of retail pharmacies on a competitive level with the "chain" pharmacies, by means of the price advantages and discounts secured through selective bulk purchases of merchandise by a corporation organized for the common benefit, the use under corporate direction of promotional and advertising skills, store supervision and proved merchandising techniques, and the practice in other respects of sound retail economy.

According to the bill, complainant on September 21, 1939 purchased from defendant Max Edlin a retail pharmacy established at 261 Franklin Avenue, in Nutley, and has ever since conducted a retail drug business there. Shortly after the purchase of the business, complainant entered into a contract with defendant James Drug Stores, Inc., the corporation created to serve the common trade interests of the retail druggists who should join the enterprise, whereby complainant undertook to "become affiliated" with the corporation as a "James Cut-Rate Retail Druggist" and to enroll as "a J.D.S. member" for the furtherance

of the common "plan in the State of New Jersey," and, to that end, "to buy James merchandise * * * in sufficient quantities to be recognized as a James Cut-Rate Drug Store, for the purpose of co-operation therewith, and also such other merchandise made available by the James Drug Stores, Inc. for that purpose; * * * to dispose of and not continue any other competitive line or agency plan carried by" him; and to pay a "monthly fee" of $13. until the termination of the contract. Complainant also agreed to become a stockholder of the corporation, "at its option," subject to the corporation's right to "repurchase" the stock "at the termination of" his "membership for any reason whatsoever and at the price originally paid or credited to" him "for the stock." The "J.D.S. Plan" was made available to "independent retail druggists" only; "Corporate Chains," "Department Stores" and "Cut-Rate Medicine Stores," as therein defined, were declared ineligible.

It was further provided that applications "for enrollment as J.D.S. members" be submitted to and approved by the corporate directorate. It was required that, by "signs and window transfers authorized by the J.D.S., or by such other means as may be approved," complainant's establishment be identified in the public mind as a "J.D.S." store. "Cooperation" was enjoined upon the "members" in the carrying out of "buying, advertising and merchandising programs, * * * as well as featuring such merchandise at prices" fixed from time to time by the corporation's directors, in order "to create demand and acceptance for such merchandise by the public;" and it was declared essential also that the "members" purchase "such merchandise and equipment from the J.D.S. or through the medium of the J.D.S." In the event of the bankruptcy of "a J.D.S. member, * * * membership shall automatically be cancelled;" and should a member be convicted of crime "or be guilty of conduct which in the opinion of the directors is detrimental to the reputation or principles of the J.D.S., or adverse to the objects of the said Plan, and if such conduct is not corrected after notice to the member, the membership may, at the option of the Board, be cancelled according to such rules set down by them, or by their by-laws or resolutions." Noncooperation

in the carrying out of the "Plan" is also a specific ground for cancellation of membership; and, in the event of cancellation or the member's voluntary resignation, all "J.D.S. signs and identifying characteristics" shall be removed from the store, and there shall be a forfeiture of all rebates, surcharges, overcharges or profits, "accrued" but not yet "declared." The member's rights are not assignable without the consent of the directors; such "rights * * * shall continue only during the period in which the said Company continues in business, providing all other paragraphs have been complied with by the said member." The member was given "the privilege of resigning at any time," on 60 days' notice; and again the corporation reserved the right to cancel the membership, on notice to the member, if, in the directors' judgment, the member did not "properly cooperate in carrying out the said plan." It is alleged that complainant earned "dividends and profits and credit for surcharges as a participating member of the corporation," and "for a portion thereof" the corporation issued to complainant 50 shares of its capital stock, but "compelled complainant to assign the stock to it "in trust;" and recovery of the stock is sought.

The bill charges that on December 29, 1947, when its annual gross business totalled $30,000, the corporation discontinued the service and thereafter refused performance, notwithstanding full performance on complainant's part; that the service was terminated without a hearing on notice to complainant; and that the stoppage of the service was the object and result of a conspiracy between the corporation and the defendants Edlin and Garawitz, the former a "member" and director and the latter a "member" of the corporation, after complainant had refused to resell his business to Edlin, the former owner, and Edlin and Garawitz had established "a rival pharmacy" nearby, at 349 Franklin Avenue, Nutley, and had contracted with the corporation for the service theretofore provided to complainant. It is also alleged that complainant ...


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