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BLINN WHOLESALE DRUG v. ELI LILLY & CO.

December 2, 1986

BLINN WHOLESALE DRUG, Plaintiff,
v.
ELI LILLY and COMPANY, Defendant



The opinion of the court was delivered by: WEXLER

MEMORANDUM AND ORDER

WEXLER, District Judge

 Plaintiff Blinn Wholesale Drug Co., Inc. ("Blinn") brings this diversity action for breach of contact against defendant Eli Lilly and Company ("Lilly"). The parties now cross-move for summary judgment pursuant to Fed. R. Civ. P. 56. For the reasons stated below, the Court grants defendant's motion and denies plaintiff's motion.

 Blinn is a wholesale distributor of pharmaceuticals, beauty aids, sundries, and other products. Lilly is a pharmaceutical manufacturer. On July 1, 1985, the parties entered into a contract, entitled "Warehousing and Distribution Service Agreement," setting forth the terms under which Lilly would provide its products to Blinn for distribution. The contract provided that Blinn was to purchase from Lilly its entire requirements for products sold under Lilly's "Lilly" and "Dista" trademarks and was to comply fully with all laws applicable to the purchase, handling, sale, and distribution of the products covered by the agreement. The contract further provided that it would run until June 30, 1986 unless renewed or terminated. The agreement could be renewed for successive one year terms at the option of the parties. Either party had the right to terminate the agreement upon thirty day's notice or upon notice for breach by the other party of any covenant contained in the contract. The contract explicitly declared that any failure by Blinn fully to comply with applicable laws or the Drug Enforcement Agency's registration requirements would constitute a breach of the agreement. The agreement provided that it was to be interpreted in accordance with and governed by Indiana law.

 On September 6, 1985, Blinn received a shipment of thirty six bottles of CECLOR, a Lilly product, from H.L. Moore Drug Exchange, a non-Lilly distributor. Blinn claims that it did not order this shipment and that it was sent to Blinn by mistake, an assertion that Lilly accepts for purposes of the pending motions. Blinn sold eight of the bottles to its customers. On September 26, 1985, a Food and Drug Administration ("FDA") agent discovered the remaining bottles of CECLOR, which were part of a lot subject to recall as a misbranded or adulterated antibiotic because it was packaged in counterfeit containers and the capsules in the bottles contained a blue dye not yet approved by the FDA for use in the United States. The receipt and sale of adulterated or misbranded drugs is a violation of the Food, Drug and Cosmetic Act, 21 U.S.C. § 331.

 By letter dated November 27, 1985, Lilly notified Blinn that it was terminating the contract between the parties effective December 31, 1985. Blinn then filed this action, seeking a temporary restraining order and preliminary and permanent injunctive relief as well as damages. After a hearing on December 17, 1985, the Honorable Frank X. Altimari, sitting as a District Judge of this Court, denied Blinn's motion for a temporary restraining order and preliminary injunctive relief. The Second Circuit affirmed Judge Altimari's decision, and, upon remand, the case was ultimately reassigned to this Judge.

 A court may grant summary judgment only if "there is no genuine issue as to any material fact and....the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56; Celotex Corporation v. Catrett, U.S., 477 U.S. 317, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986); American Manufacturers Mutual Insurance Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272, 278-79 (2d Cir. 1967), cert. denied, 404 U.S. 1063, 92 S. Ct. 737, 30 L. Ed. 2d 752 (1972). On a motion for summary judgment, "inferences to be drawn from the underlying facts....must be viewed in the light most favorable to the party opposing the motion." United States v. Diebold, 369 U.S. 654, 655, 82 S. Ct. 993, 994, 8 L. Ed. 2d 176 (1962). However, the sheer possibility that a factual dispute may exist, without more, is insufficient to overcome a convincing presentation by the moving party. Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 445 (2d Cir. 1980). The United States Supreme Court has recently held that "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment: the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, 477 U.S. 242, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986) (emphasis in original).

 As to question of the genuineness of a purported dispute regarding the facts of a case, the existence simply of a scintilla of evidence in support of a party's position is insufficient to withstand a motion for summary judgment; rather, there must be evidence upon which the finder of fact could reasonably find for the party opposing the motion. U.S. at , 106 S. Ct. at 2512. A court, furthermore, will not allow a litigant opposing summary judgment to use mere conclusory allegations or denials as a vehicle for obtaining a trial. Quinn, 613 F.2d at 438. A party must do more than simply show that there may be some "metaphysical doubt" concerning the material facts. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). As to the issue of the materiality of any dispute over given facts, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted. Anderson, U.S. at , 106 S. Ct. at 2510. Summary judgment is undoubtedly warranted, for instance, where a party has failed to make a showing sufficient to establish the existence of an element that is essential to the party's case since, in such a situation, the complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial. Celotex, U.S. at , 106 S. Ct. at 2553.

 The application of these principles that govern summary judgment motions to the case at bar seems, upon initial consideration, undeniably to lead to the conclusion that summary judgment should be entered in favor of Lilly. The parties do not dispute that, in a letter dated November 27, 1985, Lilly gave Blinn notice that it would be terminating the agreement between the two companies on December 31, 1985. The agreement directly states that either party has the right to terminate the contract upon thirty days' notice. Since there are no allegations that the contract was in any way fraudulent or violative of public policy in New York, this Court must uphold the parties' selection of Indiana law as controlling their agreement. Hawes Office Systems, Inc. v. Wang Labs, Inc., 537 F. Supp. 939 (E.D.N.Y. 1982). Under Indiana law, courts must apply clear and unambiguous termination clauses as written, and will not imply a cause requirement where the language and structure of a contract indicate the parties' intent that a termination clause not be limited in such a manner. Communications Maintenance, Inc. v. Motorola, Inc., 761 F.2d 1202 (7th Cir. 1985); Snihurowycz v. Aamco Transmissions, Inc., 418 N.E.2d 1190 (Ind. App. 1981); Piskorowski v. Shell Oil Co., 403 N.E.2d 838 (Ind. App. 1981). Lilly, it therefore appears, was acting completely within its rights when it decided to terminate the agreement with Blinn on a date more than thirty days after it gave Blinn notice of its intention to terminate the contract.

 Blinn, however, argues that, despite Lilly's seeming conformance with the clear language of the contract in its exercise of its power of termination, three separate legal doctrines require that the Court deny Lilly's motion for summary judgment, namely, the doctrines of unconscionability, waiver, and estoppel. Blinn's contentions, nonetheless, ultimately prove meritless.

 It is Blinn's position that, given the disparity of bargaining power between the parties and Blinn's perceived need to remain an authorized Lilly distributor, the thirty day termination provision, without which Lilly would not sign the agreement, constitutes an overly burdensome, unconscionable provision. Blinn asserts the heart of the issue is whether plaintiff, "who for the past 10 years has expended substantial sums of money, time and effort developing a business around his ability to be a full line distributor, which full line status is clearly dependent upon the ability to distribute Lilly products, can afford to turn down a take it or leave it proposal sent to it by Eli Lilly and Company," one of the, if not the largest, pharmeceutical manufacturers in the United States. Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment 18 ("Plaintiff's Memorandum").

 The unconscionability doctrine is a limited exception to Indiana courts' general reluctance to alter the terms of an express contract. Courts construing the doctrine under Indiana law have defined an unconscionable contract to be "one which contains unreasonable or unknown terms and is the product of inequality of bargaining power." Communications Maintenance, 761 F.2d at 1209; Piskorowski, 403 N.E.2d at 846-47 (emphasis in originals). The determination of whether an agreement is unconscionable is a question of law and is to be made based upon the circumstances existing at the time the contract was entered into. Weaver v. American Oil Co., 257 Ind. 458, 276 N.E.2d 144 (Ind. 1972); Dan Purvis Drugs, Inc. v. Aetna Life Insurance Co., 412 N.E.2d 129 (Ind. App. 1980).

 Weaver is the only case that the parties have brought to the Court's attention that holds that a specific contract or contractual provision was unenforceable under Indiana law because of unconscionability. Weaver involved a lease between a service station operator and an oil company. The lease, which was a printed form prepared by the oil company, contained, in addition to usual leasing provisions, a "hold harmless" clause that provided in substance that the operator would both hold harmless and indemnify the oil company for any negligence of the oil company occurring on the leased premises. Weaver arose after an employee of the oil company, while on the premises, sprayed gasoline over the operator and his assistant, causing them to be burned. The oil company filed an action for declaratory judgment to determine the operator's liability for the incident under the lease.

 The Indiana Supreme Court held that the clause in question was unconscionable and therefore unenforceable. The Indiana court noted that the operator had left high school after only one and a half years and, prior to leasing the service station, had worked at various skilled and unskilled labor oriented jobs. There was nothing in the record to indicate that the operator ever read the lease that the oil company's agent presented to him each year, that the agent ever asked the operator to read it, or that the agent in any manner attempted to call the operator's attention to the "hold harmless" clause or explain the provision to him in a way that might enable the operator to grasp its legal significance. The clause, furthermore, was in fine print and contained no title heading that would have identified it as an indemnity clause. Also, the operator never consulted legal counsel nor did the oil company ever suggest to the operator that he might want to do so. The Court stated, "It seems a ...


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