American Dental Cooperative, Inc. v. Attorney-General

127 A.D.2d 274, 514 N.Y.S.2d 228, 1987 N.Y. App. Div. LEXIS 41514
CourtAppellate Division of the Supreme Court of the State of New York
DecidedApril 14, 1987
StatusPublished
Cited by39 cases

This text of 127 A.D.2d 274 (American Dental Cooperative, Inc. v. Attorney-General) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
American Dental Cooperative, Inc. v. Attorney-General, 127 A.D.2d 274, 514 N.Y.S.2d 228, 1987 N.Y. App. Div. LEXIS 41514 (N.Y. Ct. App. 1987).

Opinion

[276]*276OPINION OF THE COURT

Sullivan, J. P.

This appeal presents the issue of whether New York may exercise long-arm jurisdiction over an out-of-State cooperative, suspected of being a participant in a conspiracy in restraint of trade affecting New York State residents and owned, in part, by New York member-dealers for which it regularly collects dues, consolidates purchase orders and pays bills. A secondary issue is whether the subpoena at issue is, as argued, overly broad and unduly burdensome.

American Dental Cooperative, Inc. (ADC), a Delaware corporation, is a purchasing cooperative for 30 "full service”1 dental equipment and supply dealers, each of which is independently owned. Each member owns one share of ADC class A common stock and pays dues on a monthly basis. ADC does not have an ownership interest in any of its members. Nor does it control their financial or business operations, including sales and pricing. Four of ADC’s members are located in New York. One, Mohawk Dental Supply Co., has three outlets within the State, while another, Norton Starr, Inc., has two. According to a 1985 directory, all of the dental equipment dealers in Utica and Syracuse are ADC members.

ADC’s principal functions include consolidation of the members’ purchases in order to qualify for manufacturers’ discount programs; sponsorship and development of a line of private label products; promotional and educational activities for its members; and the preparation of a product information description book for their use. Although it orders goods and services for its members and pays the monthly bills, it does not distribute products in this or any other State.

ADC is not licensed to do business in New York and does not have a resident agent or maintain an office within the State. It has never kept a bank account or any corporate books or records or held meetings here. None of its employees resides in New York. It neither owns nor leases property in New York. Its president last visited New York in his representative capacity 3 or 4 years ago to attend a professional dental show.

Sometime in 1985 the Attorney-General of the State of New York began an investigation into allegations that certain [277]*277manufacturers and dealers were engaged in a conspiracy to fix prices and engage in a group boycott within the dental products industry in restraint of trade and competition in violation of New York’s antitrust statute, General Business Law § 340 et seq. (the Donnelly Act). Preliminary investigation indicated that some full service dental products dealers had banded together to pressure manufacturers into refusing to sell to their lower priced competitors, such as discount and mail-order dealers. If these tactics succeeded, independent service organizations which install and maintain equipment purchased from mail-order dealers would also be driven out of business. Such activities constitute a per se violation of the Donnelly Act.

The two major commodities of the dental products industry are dental supplies, the consumable items used by dentists and replaced at frequent intervals (e.g., floss, burs), and dental equipment, such as X rays, dental chairs and delivery systems. Dentists generally purchase dental products from dealers, who buy them directly from the manufacturers. For years, two types of dealers serviced dentists’ needs — full service dental products dealers, who also sell dental equipment, and mail-order dealers, who sell only supplies. Dental equipment was sold and serviced only by full service dealers. Sometime in 1979-1980, however, mail-order and small store discount dealers began to enter the dental equipment retail business. Usually, they were able to charge less for comparable equipment than were the full service dealers.

The Attorney-General alleges that he has received information indicating that full service dealers have conspired, in violation of the Donnelly Act and Federal antitrust laws, to pressure dental equipment manufacturers into refusing to sell to mail-order and discount dealers or selling to them on discriminatory terms. In particular, full service dealers are alleged to have organized the "D.O.M. movement”, a boycott of all but "dealer-oriented manufacturers”, i.e., manufacturers who sell only to full service dealers. In addition, some dealers who sell equipment under their own private label in competition with the major manufacturers have offered to reduce or eliminate their private label sales if the manufacturers confine their sales to only full service dealers. The Attorney-General has also received information tending to demonstrate that some dental equipment manufacturers have succumbed to this pressure and have agreed to maintain prices at a higher level. Such conduct will obviously reduce competition [278]*278in the dental equipment industry, and inevitably raise the costs of dental services to the ultimate consumers — the general public.

The Attorney-General has reason to believe that ADC is involved in the D.O.M. movement and may be participating in this alleged conspiracy on behalf of its members, including those domiciled in New York. The Attorney-General further believes that, irrespective of whether it is actually participating in the alleged conspiracy, ADC is likely to have information relevant to his investigation. Accordingly, in December 1985, he served ADC with interrogatories and a subpoena duces tecum, which was authorized by judicial order, issued ex parte, reciting that ADC was subject to service outside of the State pursuant to CPLR article 3.

ADC moved to quash a subpoena, arguing that it is not doing or transacting business in New York and therefore is not amenable to personal jurisdiction. ADC also argued that the investigation was not authorized since the Attorney-General had failed to meet the threshold requirements of section 343 of the General Business Law, and that the document request and interrogatories were unduly burdensome and overbroad. The motion court, citing the ex parte order authorizing out-of-State service, held that the jurisdictional question was beyond its power to review and declined to address the issue. Finding that the Attorney-General’s investigation was statutorily authorized, and that the subpoena was neither overly broad nor unduly burdensome, it denied the motion. We affirm.

The refusal of the court to consider the merits of ADC’s jurisdictional challenge contravenes the clear and unambiguous language of section 343 of the General Business Law,2 which explicitly provides a mechanism — a motion, pur[279]*279suant to CPLR 2304, to quash or modify — for testing the propriety of a subpoena issued pursuant to its provisions. (See, Matter of Brunswick Hosp. Center v Hynes, 52 NY2d 333, 339.) The evidence presented to the court, however, more than justifies its conclusion, however reached, that ADC is subject to this State’s jurisdiction,3 and that it must comply with the subpoena since the information sought is relevant to the subject matter of the investigation.

Turning to the latter issue first, we note that the Legislature has enunciated a strong public policy in New York in favor of free competition and has empowered the Attorney-General to bring civil suits under both State and Federal law and to institute criminal prosecutions to vindicate this policy. (See, Columbia Gas v New York State Elec. & Gas Corp., 28 NY2d 117, 127; Matter of Aimcee Wholesale Corp. [Tomar Prods.],

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Bluebook (online)
127 A.D.2d 274, 514 N.Y.S.2d 228, 1987 N.Y. App. Div. LEXIS 41514, Counsel Stack Legal Research, https://law.counselstack.com/opinion/american-dental-cooperative-inc-v-attorney-general-nyappdiv-1987.