Eli Lilly and Company v. Sav-on-Drugs, Inc./Opinion of the Court

The appellant Eli Lilly and Company, an Indiana corporation dealing in pharmaceutical products, brought this action in a New Jersey state court to enjoin the appellee Sav-On-Drugs, Inc., a New Jersey corporation, from selling Lilly's products in New Jersey at prices lower than those fixed in minimum retail price contracts into wi ch Lilly had entered with a number of New Jersey drug retailers. Sav-On had itself signed no such contract but, under the New Jersey Fair Trade Act, prices so established become obligatory upon nonsigning retailers who have notice that the manufacturer has made these contracts with other retailers. Sav-On moved to dismiss this complaint under a New Jersey statute that denies a foreign corporation transacting business in the State the right to bring any action in New Jersey upon any contract made there unless and until it files with the New Jersey Secretary of State a copy of its charter together with a limited amount of information about its operations and obtains from him a certificate authorizing it to do business in the State.

Lilly opposed the motion to dismiss, urging that its business in New Jersey was entirely in interstate commerce and arguing, upon that ground, that the attempt to require it to file the necessary information and obtain a certificate for its New Jersey business was forbidden by the Commerce Clause of the Federal Constitution. Both parties offered evidence to the Court in the nature of affidavits as to the extent and kind of business done by Lilly with New Jersey companies and people. On this evidence, the trial court made findings of fact and granted Sav-On's motion to dismiss, stating as its ground that 'the conclusion is inescapable that the plaintiff (Lilly) was in fact doing business in this State at the time of the acts complained of and was required to, but did not, comply with the provisions of the Corporation Act.' On appeal to the Supreme Court of New Jersey, this constitutional attack was renewed and the State Attorney General was permitted to intervene as a party-defendant to defend the validity of the statute. The State Supreme Court then affirmed the judgment upholding the statute, relying entirely upon the opinion of the trial court. We noted probable jurisdiction to consider Lilly's contention that the constitutional question was improperly decided by the state courts.

The record shows that the New Jersey trade in Lilly's pharmaceutical products is carried on through both interstate and intrastate channels. Lilly manufactures these products and sells them in interstate commerce to certain selected New Jersey wholesalers. These wholesalers then sell the products in intrastate commerce to New Jersey hospitals, physicians and retail drug stores, and these retail stores in turn sell them, again in intrastate commerce, to the general public. It is well established that New Jersey cannot require Lilly to get a certificate of authority to do business in the State if its participation in this trade is limited to its wholly interstate sales to New Jersey wholesalers. Under the authority of the so-called 'drummer' cases, such as Robbins v. Shelby County Taxing District Lilly is free to send salesmen into New Jersey to promote this interstate trade without interference from regulations imposed by the State. On the other hand, it is equally well settled that if Lilly is engaged in intrastate as well as interstate aspects of the New Jersey drug business, the State can requr e it to get a certificate of authority to do business. In such a situation, Lilly could not escape state regulation merely because it is also engaged in interstate commerce. We must then look to the record to determine whether Lilly is engaged in intrastate commerce in New Jersey.

The findings of the trial court, based as they are upon uncontroverted evidence presented to it, show clearly that Lilly is conducting an intrastate as well as an interstate business in New Jersey:

'The facts are these: Plaintiff maintains an office at 60     Park Place, Newark, New Jersey. Its name is on the door and     on the tenant registry in the lobby of the building. (The     September 1959 issue of the Newark Telephone Directory lists      the plaintiff, both in the regular section and in the      classified section under 'Pharmaceutical Products,' as having      an office at 60 Park Place, Newark.) The lessor of the space      is plaintiff's employee, Leonard L. Audino, who is district      manager in charge of its marketing division for the district      known as Newark. Plaintiff is not a party to the lease, but     it reimburses Audino 'for all expenses incidental to the      maintenance and operation of said office.' There is a      secretary in the office, who is paid directly by the plaintiff on a salary basis. There are 18 'detailmen' under the supervision of Audino. These detailmen are paid on a salary basis by the plaintiff,     but receive no commissions. Many, if not all of them, reside     in the State of New Jersey. Whether plaintiff pays     unemployment or other taxes to the State of New Jersey is not      stated. It is the function of the detailmen to visit retail     pharmacists, physicians and hospitals in order to acquaint      them with the products of the plaintiff with a view to      encouraging the use of these products. Plaintiff contends     that their work is 'promotional and informational only.' On      an occasion, these detailmen, 'as a service to the retailer,'      may receive an order for plaintiff's products for transmittal      to a wholesaler. They examine the stocks and inventory of     retailers and make recommendations to them relating to the      supplying and merchandising of plaintiff's products. They     also make available to retail druggists, free of charge,      advertising and promotional material. When defendant opened     its store in Carteret, plaintiff offered to provide, and did      provide, announcements for mailing to the medical profession,      without cost to defendant. The same thing occurred when     defendant opened its Plainfield store.'

We agree with the trial court that '(t)o hold under the facts above recited that plaintiff (Lilly) is not doing business in New Jersey is to completely ignore reality.' Eighteen 'detailmen,' working out of a big office in Newark, New Jersey, with Lilly's name on the door and in the lobby of the building, and with Lilly's district manager and secretary in charge, have been regularly engaged in work for Lilly which relates directly to the intrastate aspects of the sale of Lilly's products. These eighteen 'detailmen' have been traveling throughout the State of New Jersey promoting the sales of Lilly's products, not to the wholesalers, Lilly's interstate customers, but to the physicians, hospitals and retailers who buy those products in intrastate commerce from the wholesalers. To this end, they have provided these hospitals, physicians and retailers with up-to-date knowledge of Lilly's products and with free advertising and promotional material designed to encourage the general public to make more intrastate purchases of Lilly's products. And they sometimes even directly participate in the intrastate sales themselves by transmitting orders from the hospitals, physicians and drugstores they service to the New Jersey wholesalers.

This Court had a somewhat similar problem before it in Cheney Brothers Co. v. Com. of Massachusetts. In that case, the Northwestern Consolidated Milling Company of Minnesota had been conducting business in Massachusetts in a manner quite similar to that being used by Lilly in New Jersey-a number of wholesalers were buying Northwestern's flour in interstate commerce and selling it to retail stores in Massachusetts in intrastate commerce. Northwestern had in Massachusetts, in addition to any force of drummers it may have had to promote its interstate sales to the wholesalers, a group of salesmen who traveled the State promoting the sale of flour by Massachusetts wholesalers to Massachusetts retailers. These salesmen also solicited orders from the retail dealers and turned them over to the nearest Massachusetts wholesaler. Despite this substantial connection with the intrastate business in Massachusetts, Northwestern contended that its business was wholly in interstate commerce-a contention that this Court disposed of summarily in the following words: 'Of course this is a domestic business-inducing one local merchant to buy a particular class of goods from another.'

Lilly attempts to distinguish the holding in the Cheney case on the ground that here its detailmen are not engaged in a systematic solicitation of orders from the retailers. It is true that the record in the Cheney case shows a more regular solicitation of orders than does the record here. But that difference is not enough to distinguish the cases. For the record shows that Lilly here, no less than Northwestern there, engages in a 'domestic business-inducing,' as the Court said of Northwestern, 'one local merchant to buy a particular class of goods from another.' The fact that the business of 'inducing' intrastate sales, as engaged in by Lilly, is primarily a promotional and service business which does not include a systematic solicitation of orders goes only to the nature of the intrastate business Lilly is carrying on, not to the question of whether it is carrying on an intrastate business.

Lilly also contends that even if it is engaged in intrastate commerce in New Jersey and can by virtue of that fact be required to get a license to do business in that State, New Jersey cannot properly deny it access to the courts in this case because the suit is one arising out of the interstate aspects of its business. In this regard, Lilly relies upon such cases as International Textbook Co. v. Pigg, holding that a State cannot condition the right of a foreign corporation to sue upon a contract for the interstate sale of goods. We do not think that those cases are applicable here, however, for the present suit is not of that kind. Here, Lilly is suing upon a contract entirely separable from any particular interstate sale and the power of the State is consequently not limited by cases involving such contracts.

What we have said would be enough to dispose of this case were it not for the contention that the question whether Lilly is engaged in intrastate commerce in New Jersey is not properly before us. This contention is based upn Lilly's interpretation of the decision of the New Jersey court as resting upon the assumption that Lilly has been engaged in interstate commerce only. We cannot accept that contention because, in the first place, it rests upon a completely erroneous interpretation of the New Jersey court's opinion. That court was called upon to decide whether appellant was 'transacting business' in New Jersey within the meaning of the statute which requires the registration of foreign corporations. In deciding that question, the court relied upon the facts set out in the affidavits with regard to the various local activities of Lilly as summarized in the findings quoted above. The only reasonable inference from these findings is that the trial court interpreted the phrase 'transacting business' in the New Jersey statute to mean transacting local intrastate business and concluded from the facts it found that Lilly was transacting such business. This conclusion is reinforced by a subsequent New Jersey opinion that distinguishes the decision in this case on precisely that ground.

But even if the opinion of the court below should, as is urged, be interpreted as resting upon the mistaken belief that appellant could be required to register, even though it transacted no business whatever in New Jersey except interstate business, we think it would still be necessary to affirm the decision of that court on the record presently before us. That record clearly shows that Lilly was, as a matter of fact, engaged in local intrastate business in New Jersey through the employees it kept there to induce retailers, physicians and hospitals to buy Lilly's products from New Jersey wholesalers in intrastate commerce. So even if the state court had rested its conclusions on an improper ground, this Court could not, in view of the undisputed facts establishing its validity declare a solemn act of the State of New Jersey unconstitutional. The record clearly supports the judgment of the New Jersey Supreme Court and that judgment must therefore be and is affirmed.

Affirmed.