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Abtrax Pharmaceuticals, Inc. v. Elkins-Sinn

April 10, 1995

ABTRAX PHARMACEUTICALS, INC., T/A SUMMIT HILL LABORATORIES, PLAINTIFF-RESPONDENT AND CROSS-APPELLANT,
v.
ELKINS-SINN, INC., DEFENDANT-APPELLANT AND CROSS-RESPONDENT.



On certification to the Superior Court, Appellate Division.

The opinion of the Court was delivered by Stein, J. Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, Garibaldi, and Coleman join in this opinion.

The opinion of the court was delivered by: Stein

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

ABTRAX PHARMACEUTICALS, INC., V. ELKINS-SINN, INC. (A-70/179-94)

Argued January 3, 1995 -- Decided April 10, 1995

STEIN, J., writing for a unanimous Court.

Abtrax Pharmaceuticals, Inc. (Abtrax) is a wholesaler of veterinary supplies located in Navesink, New Jersey. Charles W. Rainier, Jr. is the president of Abtrax and owns ninety-nine percent of the company's stock. In August 1969, Elkins-Sinn, Inc. (Elkins) agreed to package a veterinary product developed by Abtrax called Gecolate, an intravenous muscle relaxant for horses. Abtrax holds the patent for a process that Rainier and Elkins developed for sterilizing and packaging Gecolate powder. Abtrax began marketing the product in 1974.

In February 1982, Elkins informed Abtrax that it would stop producing Gecolate powder. In 1984, Elkins' parent company, A.H. Robins, began to market a competing product. In December 1985, Abtrax filed a complaint against Elkins, alleging that Elkins had breached its contract by ceasing to manufacture Gecolate powder without sufficient notice to permit Abtrax to find a new manufacturer, and that Elkins had revealed trade secrets to competing manufacturers.

During discovery, Abtrax continually failed to provide Elkins with documents it had requested in answers to interrogatories and in requests for production of documents. There were several motions and resulting court orders requiring Abtrax to comply with those requests. Rainier, on behalf of Abtrax, claimed that sales invoices and purchase orders for Gecolate powder had been lost or destroyed in a flood at Abtrax's business premises. In addition, at both of Rainier's depositions, he failed to provide documents that had been requested by Elkins, specifically documents relating to the sale of Gecolate powder from 1980 to 1982.

On September 5, 1990, the trial court issued an order requiring the deposition of Mrs. Rainier and the production at that deposition of documents identified in the Rider that was attached to the original notice to depose Mrs. Rainier. In the Rider, Elkins asked for all financial records pertaining to Gecolate powder and Gecolate injectable solution from 1980 to the present, including but not limited to bills, invoices, sales receipts, expenditures, and accounting records. The court also ordered that Abtrax produce the documents identified in Elkins' March 28, 1989 request for production of documents, which was a reiteration of the documents requested in the Rider. At Mrs. Rainier's deposition, Elkins was informed by Abtrax that everything related to Gecolate powder previously had been provided.

Trial began in December 1990. During the direct examination of Rainier, it came to light that Abtrax had not produced certain invoices requested during discovery. Rainier admitted that not all pre-1984 sales records had been lost in the flood. In addition, Abtrax's attorney learned that Abtrax had not produced the sales records and invoices for Canadian sales of Gecolate powder. The Judge adjourned the trial and directed the attorneys to examine the undisclosed files at Rainier's office in Navesink.

At the Navesink warehouse, the attorneys located fifty to sixty boxes of pre-1984 invoices that included sales records for Gecolate powder. Fourteen additional boxes were located at Rainier's home that contained relevant sales records from 1979 to 1981, including sales invoices, purchase orders, and telephone solicitations for Gecolate powder.

The trial resumed on December 17, 1990. Elkins' attorney moved pursuant to Rule 4:23-2(b)(3) to dismiss the complaint for failure to comply with discovery orders. The trial court granted the motion, finding that there was a serious abuse of the discovery process in that Rainier failed to disclose relevant documents, made false statements under oath, and failed the obey court's order. In addition, the court awarded Elkins counsel fees and expenses incurred for preparation and attendance at trial and other expenses the court deemed appropriate.

Abtrax moved for reconsideration of the dismissal order. The trial court denied that motion on December 23, 1991, concluding that Abtrax's disobedience of discovery orders and false deposition testimony constituted contempt of court punishable by summary dismissal of the complaint and an award of counsel fees and expenses. The court found that Rainier's conduct was clearly contumacious. The court also found that the need for additional discovery and additional trial preparation was sufficiently prejudicial to Elkins.

On appeal, the Appellate Division affirmed the imposition of sanctions against Abtrax for willful discovery misconduct, but reversed the trial court's dismissal of the complaint as too harsh a remedy.

The Supreme Court granted Elkins' petition for certification and Abtrax's cross-petition for certification.

HELD: There was adequate, substantial, and credible evidence in the record to sustain the trial court's factual findings of discovery misconduct consisting of the willful concealment of relevant documents; therefore, the trial court properly exercised its discretion in dismissing Abtrax's complaint pursuant to Rule 4:23-2(b)(3).

1. Discovery rules were designed to eliminate, as far as possible, concealment and surprise at trial. If discovery rules are to be effective, courts must be prepared to impose the appropriate sanctions for violations of those rules. Rule 4:23-2(b) authorizes the imposition of sanctions for failing to comply with a court order. The sanction of dismissal should be imposed only sparingly and only when the discovery goes to the very foundation of the cause of action or where the refusal to comply is deliberate and contumacious. (pp.15-22)

2. The findings of the trial court should not be disturbed unless those findings are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of Justice. In other words, did the trial court abuse its discretion in dismissing the complaint? Here, the trial court did not need to conduct an evidentiary hearing to decide whether Abtrax's complaint should be dismissed with prejudice because the court had before it an extensive record. (pp. 22-26)

3. There was adequate, substantial and credible evidence in the record to sustain the trial court's factual findings. Thus, the trial court did not abuse its discretion in finding deliberate and contumacious conduct and in concluding that the extreme sanction of dismissal was appropriate in this case. Moreover, the court appropriately noted that Rainier's conduct significantly prejudiced Elkins' trial preparation. (pp. 26-29)

Judgment of the Appellate Division reinstating Abtrax's complaint is REVERSED, and the judgment of the Appellate Division in respect of the trial court's award of counsel fees and expenses is AFFIRMED.

CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI, and COLEMAN join in JUSTICE STEIN'S opinion.

STEIN, J.

The issue before us is whether a complaint should be dismissed pursuant to Rule 4:23-2(b)(3) for discovery misconduct consisting of the willful concealment of relevant documents. The Law Division found that plaintiff's conduct was contumacious, dismissed plaintiff's complaint with prejudice and awarded counsel fees and expenses. In an unreported opinion, the Appellate Division agreed with the finding that plaintiff had willfully concealed relevant documents, affirmed the award of counsel fees and expenses, but reversed the trial court's dismissal of the complaint. We granted certification, 137 N.J. 314 (1994), and now hold that the trial court properly exercised its discretion in dismissing Abtrax's complaint. As a result, we reverse in part the judgment of the Appellate Division and reinstate the judgment of the Law Division dismissing the complaint.

I

Plaintiff Abtrax Pharmaceuticals, Inc., (Abtrax) is a wholesaler of veterinary supplies located in Navesink, New Jersey. CharlesW. Rahner, Jr., the company's president, owns ninety-nine percent of Abtrax's stock. In August 1969, defendant Elkins-Sinn, Inc. (Elkins) agreed to package a veterinary product developed by Abtrax called Gecolate, an intravenous muscle relaxant for horses. Rahner and Elkins developed techniques for sterilizing the Gecolate powder and packaging it so that sterile water could be added before use. Abtrax holds the patent for that process. Production began in 1972 when the Food and Drug Administration approved Abtrax's New Animal Drug Application. By 1974, Abtrax began marketing the product.

In February 1982, Elkins informed Abtrax that it would stop producing Gecolate powder. In 1984, A.H. Robins, which became Elkins's parent company after the initial production of Gecolate powder, began to market Guailaxin, a competing product. Although Rahner claims that he was unsuccessful in finding an alternative manufacturer, since 1987 Vet Labs, Inc. has been producing Gecolate injection for Abtrax, a solution form of the product that Abtrax bought from another company.

In December 1985, Abtrax filed a three-count complaint alleging that Elkins had breached its contract by ceasing to manufacture Gecolate powder without sufficient notice to permit Abtrax to find a new manufacturer (counts one and two). Abtrax further alleged that Elkins had revealed trade secrets to competing manufacturers (count three). Elkins filed an answer and requested production of documents relating to Abtrax's claims. In April 1986, Abtrax responded to Elkins's request by stating, "we have not ...


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