Appeal from order entered in the United States District Court for the Southern District of New York (Duffy, J.) denying motion for Rule 11 sanctions made by appellant following stipulation of dismissal filed by parties in action asserting Sherman Act, Lanham Act and pendent state tort claims. Affirmed.
Oakes, Chief Judge, Miner and Altimari, Circuit Judges.
Plaintiff-appellee Barr Laboratories, Inc. ("Barr") and defendant-appellant Abbott Laboratories ("Abbott") are manufacturers of pharmaceutical products. Among those products is a broad spectrum antibiotic drug produced by both parties. Although its patent rights in the drug have expired, Abbott continues to market the product under a brand name. Barr competes with Abbott by distributing the antibiotic under a generic name. Accusing Abbott of extending its patent monopoly by misrepresenting to state agencies and others the quality of the generic version of the drug, Barr commenced the action at bar in the United States District Court for the Southern District of New York. Alleged in the complaint are claims predicated on violations of the Sherman and Lanham Acts as well as pendent state tort claims. Following some pre-trial proceedings, the parties entered into and filed a stipulation dismissing the action with prejudice. Thereafter, Barr filed a similar action against Abbott in the District Court of New Jersey. There followed an application by Abbott in the Southern District for the imposition of Rule 11 sanctions upon Barr. Judge Duffy, to whom the case originally had been assigned, denied the application for lack of jurisdiction. While we are not prepared to say that a district court is totally without authority to impose sanctions after a stipulated dismissal, we hold that Abbott's application properly was denied under the circumstances presented here.
The antibiotic drug manufactured by the parties is known as erythromycin ethylsuccinate, which apparently has the unique quality of producing no adverse side effects in those who use it. Abbott held the exclusive right to manufacture this drug from 1961 to 1978 under letters patent and at all times has distributed it under the name "EES-400." After the expiration of Abbott's patent, Barr obtained the necessary regulatory approvals and began to distribute the generic equivalent of EES-400 in competition with Abbott.
According to the complaint filed by Barr in this action on April 21, 1986, Abbott at some point "launched a predatory campaign to defame and render unmarketable" the product offered by Barr by sending "numerous communications to state regulatory agencies falsely representing that Barr's erythromycin ethylsuccinate was not the bioequivalent of Abbott's EES-400." The complaint alleged that Abbott also falsely stated that Barr's product was not suitable for its designated use and was potentially dangerous to the health of the user. The misrepresentations allegedly were made "to pharmacists and other prospective customers of such product" as well as to state agencies.
On the first claim pleaded in the complaint, antitrust violations under the Sherman Act, 15 U.S.C. § 2, Barr sought treble its actual damages, together with attorneys' fees and costs. On the second claim, false descriptions of its product under the Lanham Act, 15 U.S.C. § 1125(a), Barr demanded injunctive relief as well as treble its lost profits. The tort claims of defamation, product disparagement, tortious interference with customer relations and unfair competition, pleaded in the third, fourth, fifth and sixth claims in the complaint, form the basis for Barr's demand for actual and punitive damages for the tortious conduct alleged.
An answer to the complaint was filed on June 16, 1986. On July 24, 1986, counsel for Abbott met with counsel then representing Barr in a futile effort to persuade the latter that there was no factual basis to justify further pursuit of this action. On October 10, 1986, Abbott responded to a document request by Barr. The documents were accompanied by a letter in which Abbott's counsel, referring to certain market share data also enclosed with the letter, advised his adversary: "I believe there are very grave flaws in your antitrust theory and that you would wish to review your complaint before we proceed with expensive litigation concerning that claim." It appears that this caveat went unanswered. A stipulated order, signed by Judge Duffy on October 3, 1986 and allowing either party to designate any discovery materials as confidential, was filed on October 24, 1986.
After a substitution of attorneys for Barr in January of 1987, it became apparent that the substituted attorneys had a potential conflict of interest, and the attorneys presently representing Barr formally entered the case as the result of a second substitution in April of 1987. Despite the two changes of attorneys, depositions of a number of Barr employees were conducted between February 5, 1987 and August 7, 1987. Barr never sought any depositions from Abbott.
At a status conference held on June 5, 1987, Judge Duffy ordered that discovery be concluded by August 31, 1987. Shortly after the conference, Barr's attorneys made a request for additional documents. By letter dated July 15, 1987, counsel for Abbott refused, for various reasons, to produce most of the documents requested. Following the last deposition, held on August 7, 1987, Barr's attorney claims to have "concluded that based upon the original complaint, Barr would unlikely be able to establish sufficient damages resulting from Abbott's disparaging communications." Accordingly, he says, a decision was made "to move to amend and supplement the complaint to assert claims for price discrimination and for injunctive relief."
Immediately prior to a pre-trial conference scheduled for September 18, 1987 to set a schedule for final disposition of the action, Barr served a motion to amend the complaint and for a preliminary injunction. The proposed amended complaint substantially re-asserted the allegations of the original complaint and added a claim for violation of Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Price Discrimination Act, 15 U.S.C. § 13(a). At the conference held on September 18, Judge Duffy directed that Abbott respond to Barr's motion within three weeks. Judge Duffy also directed the filing of a motion for summary judgment by Abbott within the same time period, Abbott's counsel previously having expressed his intention to so move. On October 5, 1987, purportedly "because of the delay which would naturally result by the interposition of Abbott's motion for summary judgment," Barr withdrew its motion to amend and for preliminary injunction, leaving only Abbott's motion for summary judgment pending. On October 9, 1987, after obtaining a one week extension to file the summary judgment motion, counsel for Abbott wrote to Barr's attorney once again in an effort to bring the lawsuit to an end. The letter reviewed the merits of the action, referred to "the professional courtesy with which this litigation has been handled," and concluded as follows:
If we prevail on the summary judgment motion we are filing next week, Abbott intends to apply to the Court to hold Barr responsible for the expenses necessary to prove its position. Eastway Construction Corp. v. The City of New York, 762 F.2d 243, 251-54 (2d Cir. 1985). I therefore respectfully but earnestly urge you and your client to review your position and to withdraw the complaint before Abbott is forced to engage in further litigation expense.
On October 20, 1987, after the parties had agreed to an additional one week extension of time for the filing of the summary judgment motion and conducted some discussions relating to the disposition of the lawsuit, Barr agreed to enter into a stipulation dismissing the action with prejudice. Abbott's attorney forwarded the executed stipulation to Barr's attorney with a cover letter, dated October 21, 1987, in which he indicated that he was "appreciative of the manner in which the case was resolved." Although approval of the dismissal was not required, Fed. R. Civ. P. 41(a)(1)(ii), Judge Duffy marked the stipulation "So Ordered" and signed his name thereto on October 22, 1987. The stipulation was filed in the office of the Clerk of the Southern District on October 28, 1987. On the same day, according to Barr's counsel, the attorney for the parties met to ...