ASSIGNMENT # 1
BUSINESS LAW 331
ASSIGNMENT # 1
BUSINESS LAW 331
by Kent Edward Baxter 22 September 1999 Instructor: Peter Miller
LAW OF TORTS
PROBLEM STATEMENT
A $120-million lawsuit against Shoppers Drug Mart, which had been brought against the company by Meditrust Healthcare Inc., a mail-order pharmacist in April 1997, has been expanded to include two of Shoppers' top executives.
Meditrust has alleged that top executives at Shoppers Drug Mart/Pharmaprix had been responsible for a conspiracy aimed at harming the reputation and business dealings of Meditrust. Meditrust has been successful, in addition to the suit against Shoppers, bringing suit towards the company chairman, David Bloom, and Arthur Konvisor, senior vice-president, as principal conspirators in the lawsuit.
The Ontario Court of Appeal's decision will make Konvisor and Bloom subject to questioning by Meditrust's lawyers in a courtroom examination, which in 1998 had been successfully. The allegations which have been put forward by Meditrust have been denied by the legal counsel of Shoppers, who had made the successful courtroom argument that employees of Shoppers should not be directly targeted by the suit.
In a related case, a private investigator had been hired by Norman Paul, a former president of Meditrust, in order to support his [separate] original lawsuit, which had been re-filed in 1998 against Shoppers, on the grounds that Shoppers had engaged in illegal restraint of trade. With new factors coming into the lawsuit, total claims being sought by Meditrust Healthcare have increased from the original amount [in 1997] of $120 million to $755 million, the addition of $635 million being sought by Mr. Paul.
Shoppers Drug Mart, an 825 outlet chain, is currently up for sale by parent company Imasco Ltd, for an estimated $4 billion. Coincidentally, Mr. Bloom is known to have an interest in making a management-led bid for the drugstore chain.
ANALYSIS
The main issues of this care are related to economic torts, and general business law.
The allegations that Meditrust's reputation had been harmed by shoppers in an attempt to earn more sales [presumably], is an example of unlawful interference with trade. As well, product defamation could also apply. Overall, Shoppers is alleged to have engaged in an anticompetitive manner.
Product [and Service] Defamation, p. 85, Ch. 4 - making false and/or damaging statements about the products of another [person or business].
There have been allegations made by Meditrust that Shoppers Drug Mart 'in an attempt to crush Meditrust, attack that company's reputation and harmed its business deals.' While no specifics were given in this article, it could be argued that one-time incidents involving Meditrust and its customers were brought up by Shoppers and used to bring clients into Shoppers' business dealings.
Unlawful Interference With Trade, p. 85, Ch. 4 -'Attempting by threats to induce one person to discontinue business relations with another.'
The threat(s) per se, logically not one of violence or extortion, may be in Shoppers' advice to potential customers or investors of Meditrust, if Shoppers had created a sense of fear or panic by, for example, telling investors, using one-time problems with customers as an example, that 'Meditrust isn't as reliable because it's a mail-order service, and your customers may have to go directly to the company's warehouse if it cannot get through to them on time.' *
In Mr. Paul's suit, Shoppers drug mart is
alleged, along with various pharmacy organizations to have
lobbied Toronto city councilors to vote against a plan that would
see civic employees receive medications provided by Meditrust.*
*see article at back of report, Mail order drugs take on pharmacies
Monopolizing, p. 495, Ch. 23 - 'The offense of a conspiracy requires that two or more persons agree to restrict competition.'
Other parties named as defendants, notably [pharmacy owner] Lawrence Rosen, plus several pharmaceutical associations and the Canadian Association of Chain Drug Stores, may have had a direct or indirect role in allegedly influencing potential customers or investors to avoid dealing with Meditrust, even being negligent in not warning Shoppers Drug Mart against engaging in such practices. As the rule requires, two or more persons (Bloom & Konvisor) and certain companies/organizations (who are also defendants) are alleged to have done so.
Conspiracies, p. 493, Ch. 23
The Supreme Court of Canada has set criteria
for determining whether the offence of conspiracy has been
committed:
a. The accused must have intended to conspire or agree
b. It must have been objectively apparent to the accused that the
likely effect would have been to lessen competition.
CONCLUSION
(Note: As no previous details on this particular case could be found, either in electronic periodicals [Markham Public Library] or on the internet, I will give a scenario as to what decision could be made, under theoretical evidence).
If I were the judge in this case, the fact that Messrs. Bloom and Konvisor are now subject to courtroom examination is important to any decision, in regards to the issue of tort law. If it turned out that evidence brought forward by the court, and the private investigator against Bloom and Konvisor were to prove that the executives had a direct role in conspiring against Meditrust, I would make a decision based on these circumstances:
- Since the Ontario Court of Appeal has deemed that the Shoppers executives are subject to examination by the court, they are subject to law as determined by whatever evidence is brought towards them, even though there had been an earlier decision executives and employees should not be directly targeted by the suit.
- If the Shoppers executives, employees and other defendants are proven to have engaged in unlawful interference with trade along with the other defendants named, testimony by witnesses would be relevant in proving this charge. Shoppers should not have, (in the event that a potential client was making an inquiry) allegedly told the investor directly that Meditrust has had certain problem. A serious investor would have found this out for himself or herself from investment guides or consumer report periodicals.
- The other defendants, besides pharmacy owner Lawrence Rosen, include the Metropolitan Toronto and Ontario Pharmacists Association, The Canadian Pharmaceutical Association, and The Canadian Association of Chain Drug Stores. These organizations, which in no doubt represent all pharmacy organizations, should have remained neutral, or informed /reminded Shoppers that any alleged interference with trade was illegal and uncalled for.
- Witnesses that are called upon to testify may be clients or former clients of Meditrust, who, if the latter withdrew their contracts due to influence by Shoppers, could be used as evidence that Product/Service Defamation had taken place. Example - If a health centre who was searching for the best deal in purchasing items from a supplier, contacted shoppers for information, and was told (by phone or in print) that 'Meditrust is new, and are incapable of handling major orders', or 'It may be risky to deal with Meditrust.'
- Any financial settlement should include amounts lost through actual cancellation of second-party contracts, in accordance to evidence brought forward by witnesses, and through careful accounting and auditing. Sales lost by the choice of potential investors or customers would not count financially, since no money was lost by Meditrust in that aspect.
Since the article in the Financial Post did not deal with Mr. Paul's lawsuit, I (as the judge) would, if the Shoppers executives, Shoppers Drug Mart, and other defendants were found guilty, would award Meditrust an amount considerably less than the $120-million sought, provided that a cost-to-damages estimate (including financial statements) can be reasonably made.
My decision would be, from evidence gathered and through use of the above assumptions, as no proper evidence could be found, in the article or through other resources relating to this specific case, would be a guilty verdict against Shoppers for the charges of illegal restraint of trade, unfair trade practices, product/service defamation (to an extent) and unlawful interference with trade (to an extent).
Most importantly, financial damages should only be awarded (to a maximum amount) if the defendants are found guilty of in relation to specific charges relating to those torts covered.