Empire Industries Inc. (Empire) contends that Winslyn Industries, LLC (Winslyn) tortiously interfered in a contract between Empire and The Fireclay Factory LLC and Niko (INT) Ltd. (collectively, Fireclay) to produce sinks. Empire urges the Court to issue a preliminary injunction to prevent Winslyn from benefitting from its interference.
Background
This is a case about fireclay sinks, which are formed from clay fired at very high temperatures. They have existed for many years but are newly popular among homeowners. This suit arises from Empire's allegation that Fireclay, a sink manufacturer, promised it would manufacture certain sink designs exclusively for Empire but then produced sinks with an indistinguishable design for Winslyn, another distributor, in breach of this promise.
I. Fireclay agrees to manufacture Empire's sinks
Empire manufactures and distributes countertops, sinks, and other kitchen and bathroom accessories. Jacob Goren is the chief executive of Empire. Goren began designing a farmhouse-style fireclay sink in 2013 that he believed differed from others offered in the market. The sink was rectangular in design and featured thin walls, narrow-radius curves, and "contemporary styling." D.E. 74 ¶ 17 (Empire's Direct Examination Stmt. for Goren).
In July 2016, Fireclay and Empire began to discuss the prospect of Fireclay manufacturing products for Empire. Fireclay produces products made of fireclay for customers around the world. Peter Shilling is its managing director; Tony Wood and Charles Woodhead are employed by Niko, an affiliated entity.
On March 21, 2017, Goren e-mailed Shilling to express concern that he had spent significant time developing the molds with Fireclay and was now "realizing that I may have done all this for my competition as our agreement is really one sided[.]" PX 17 at EMPIRE0000590-91. Goren expressed concern that his efforts were "helping to build a factory for the competition."
II. Fireclay contacts Winslyn; they contract to produce additional sinks
As Fireclay exchanged e-mails with Empire, it was also communicating with Winslyn, another seller and distributor of kitchen products. William Stuebner is the president, founder, and part owner of Winslyn. In March 2017, Stuebner asked Fireclay which farmhouse-style sinks were available for sale. Fireclay provided a list of available sinks, and Winslyn relied upon this list to solicit potential customers. On June 2, Menard's, a major retailer, selected several sinks offered by Winslyn. But the sinks that Menard's selected were the sinks that Goren had designed for Fireclay to make exclusively for Empire.
On June 19, Woodhead e-mailed Stuebner to inform him that the sink that Menard's wanted was not available because it belonged to another customer of Fireclay; he sent Stuebner pictures of an alternative design. PX 40 at WINSLYN00000897 (June 19, 2017 Woodhead e-mail to Stuebner) ("there is a owner ship issue now as the customer has paid for the mould so we have amended to what we have sent on the image"). Wood also told Stuebner that "design rights" prevented Winslyn from obtaining the sinks that Fireclay produced for Empire.
Q. And you're telling [Wood,] I imagine, "We've got millions of dollars on the line. You're going to damn well send me that sink"?
A. You could imagine that.
Q. Correct. Is that basically how it happened?
A. Yeah. "I need my sink. I've got business here."
May 30, 2018 Hr'g Tr. at 137-38.
III. Empire learns of Fireclay's sales to Winslyn
While Fireclay was working with Winslyn to produce sinks, it continued to work alongside Empire as well. Goren had grown concerned that Fireclay was delivering its sinks at a slow pace, so he visited Fireclay's factory, located in the United Arab Emirates, in November 2017. Goren toured the factory and saw hundreds of sinks in production; he thought that Fireclay was finally producing sinks at the capacity it promised. But, after returning from lunch, he noticed sinks that contained only slight variations from the sinks he designed. When confronted, Fireclay told Goren that the sinks were for an Australian customer and would not be sold in the United States. Nonetheless, Goren was frustrated: he believed Fireclay used his design to make these sinks and had delayed shipments to Empire to produce sinks for another customer. Yet Empire later learned that Fireclay was selling these sinks to Winslyn in the United States.
On November 28, Goren e-mailed Wood, Shilling, and the Winslyn customer support e-mail address. Goren offered to forego litigation if Fireclay honored its agreement not to sell what he believed to be Empire's sink design. Goren also contacted a representative of Ferguson Enterprises, another retailer he believed was receiving the sinks, to warn of Fireclay's obligation to Empire.
Stuebner e-mailed several Fireclay employees on November 30 to inquire about Goren's e-mail. In response, Wood said there was "no issue" and that the sinks about which Goren was e-mailing "ha[d] been in the market for many years." DX 36 at WINSLYN0001765 (Nov. 30, 2017 Wood e-mail to Stuebner).
Goren contacted Fireclay to urge it to uphold the exclusivity agreement. Fireclay denied that there was a binding exclusivity agreement and said that the sinks produced for Winslyn were not the same as Empire's sinks. On December 29, Fireclay notified Empire it terminated any contractual relationship they had.
IV. Empire files suit
On January 30, 2018, Empire filed a complaint against Winslyn, alleging tortious interference with contractual relations and tortious interference with prospective economic advantage. On March 28, Empire moved for a temporary restraining order and a preliminary injunction. On March 29, Empire amended its complaint to specifically request the Court to enjoin Winslyn from receiving additional
On May 30, the Court held an evidentiary hearing on Empire's motion for a preliminary injunction. The parties then filed post-hearing briefs.
Discussion
Empire has moved for a preliminary injunction. To obtain a preliminary injunction, Empire must first show it has "some likelihood of success on the merits," no adequate remedy at law, and will suffer irreparable harm if the injunction is denied. Ty, Inc. v. Jones Grp., Inc. ,
Before proceeding to the merits of Empire's preliminary injunction motion, the Court must address two points at the onset to clarify the decision that follows. First, Empire peppers its briefs with terms like "proprietary design," suggesting a claim based on, perhaps, trade dress. But it does not actually assert a claim on that basis. Rather, Empire has argued, and the Court restricts its analysis to, Empire's likelihood of success on a claim that it entered into an enforceable contract restricting Fireclay's ability to sell Empire's sink design to others and whether Winslyn intentionally interfered with that contract. In its briefs, Winslyn addresses what it believes to be Empire's "implied confidentiality theories," but the Court only understands Empire as asserting a straightforward contract-based claim.
The second point follows from the first. The scope of injunctive relief is limited to the contractual theory Empire put forward. Empire cannot obtain an injunction that protects its "designs" beyond whatever its contract with Fireclay would protect. The preliminary injunction would restore the parties to the point prior to Fireclay's purported breach, by limiting Winslyn from purchasing, marketing, and selling sinks sold by Fireclay that contravene its contractual obligations to Empire. "[I]t is the last uncontested status preceding the controversy which is to be maintained by the court, rather than a status wrongfully altered by unilateral action after dispute has arisen." LTD Commodities, Inc. v. Perederij ,
I. Likelihood of success
To obtain a preliminary objection, "[t]he threshold factor is the likelihood of success on the merits."
Empire originally sought an injunction for Winslyn's purported interference with contract and interference with prospective business relations, but Empire dropped the latter claim. Empire asserted an unjust enrichment claim in its second amended complaint and, in its post-hearing brief, argued this claim as a basis for a preliminary injunction. Because the Court concludes Empire is entitled to a preliminary injunction on its interference with contract claim, it need not address the unjust enrichment claim.
Before reviewing Empire's likelihood of success on the merits, the Court reviews three arguments that Winslyn contends keep Empire's interference with contract claim from ever leaving the starting gate. First, Winslyn contends that Empire cannot bring an interference with contract claim because it is barred by the economic loss doctrine, which forbids recovery in tort for economic loss alone. See Moorman Mfg. Co. v. Nat'l Tank Co. ,
Next, Winslyn contends there is nothing for the Court to enjoin, as Empire's contractual rights with Fireclay have now been terminated and thus there can be no prospective breach. But this effectively amounts to an argument that a preliminary injunction is never available on a claim of tortious interference with contract (or, for that matter, a claim of breach of contract) because the contract has already been breached and thus there is no future harm to enjoin. Winslyn cites no authority supporting this contention. That aside, Winslyn's argument conflates two distinct issues: whether Empire is likely to prevail on the merits of its interference with contract claim (which requires Empire to demonstrate that a contract was breached, not that a breach is imminent),
Third, Winslyn contends that the Empire-Fireclay contract was terminable at will and that such a contract cannot support a tortious interference claim. As Winslyn argues, contracts of indefinite duration are disfavored in Illinois, as the contracts would otherwise impose "perpetual" obligations. Rico Indus., Inc. v. TLC Grp., Inc. ,
The Court disagrees with Winslyn's conclusion, for two reasons.
E.J. Brach Corp. v. Gilbert International, Inc. , No.
The Court finds that the Empire-Fireclay agreement implies a comparable term of duration. Specifically, the contract implies a period of duration long enough for Empire to recover the time and money it expended to develop Fireclay's capacity to produce its sinks. The Court need not determine the duration of this period now-to resolve Winslyn's argument, it is sufficient to conclude that, if there were a contract, it was not terminable by Fireclay at will.
Moreover, even if the contract to supply Empire with sinks was terminable by Fireclay at will, and Fireclay terminated it, that would not relieve Fireclay from its exclusivity undertaking. Empire directs the Court's attention to two cases in support of this proposition. First is a case in which the plaintiff asserted a breach of contract claim against a defendant who acted contrary to a licensing agreement that had previously expired. CustomGuide v. CareerBuilder, LLC , No.
To prevail on a tortious interference with contract claim, Empire must show: "(1) the existence of a valid and enforceable contract between the plaintiff and a third party; (2) the defendant's awareness of the contractual relationship; (3) the defendant's intentional and unjustified inducement of a breach of the contract; (4) a subsequent breach by the third party caused by the defendant's wrongful conduct; and (5) damages resulting from the breach." Wheel Masters, Inc. v. Jiffy Metal Prods. Co. ,
A. Valid and enforceable contract
First, Empire showed a reasonable likelihood that a valid and enforceable contract existed between Fireclay and Empire. Empire presented several e-mails from which a contract could reasonably be construed. On March 25, 2017, Wood (of Fireclay) proposed an agreement to Goren with two terms:
• "We will supply exclusive products to your designs to your company only"
• "OEM products for other possible customers could then be sold under a different design."
PX 17 at EMPIRE0000589 (Mar. 25 2017 Wood e-mail to Goren). Goren accepted the offer.
Winslyn argues that these e-mails do not document a binding contract between Empire and Fireclay, for four reasons: (1) Empire's characterization of the contract has changed throughout the litigation; (2) the contract lacked consideration; (3) the contract is not sufficiently definite; and (4) the contract is unenforceable as a matter of law. Winslyn first argues that Empire's definition of the contract has shifted over the course of the litigation. This is obviously not a basis for concluding that Empire has no chance of establishing a contract exists. Winslyn also notes that Empire admitted at one point that it never entered a "formal, signed, written agreement" with Fireclay. See D.E. 16-1 ¶ 12 (Goren Decl.). But an enforceable contract can exist without being
Second, Winslyn suggests that it did not receive any consideration in exchange for its promise. Village of South Elgin v. Waste Mgmt. of Ill., Inc. ,
Third, Winslyn argues that the alleged understanding was insufficiently definite to be an enforceable agreement. The record reflects that, in exchange for Empire's investments in Fireclay's capacity and its ongoing orders, Fireclay agreed not to produce its sinks for others, which is sufficiently definite "so that the terms are either determined or may be implied." Penzell v. Taylor ,
Finally, Winslyn contends that, if the contract protects anything beyond the precise designs Empire offered to Fireclay, then it is unenforceable under Illinois law, citing Peerless Industries, Inc. v. Crimson AV, LLC , No.
B. Knowledge
Second, Empire has demonstrated a reasonable chance of showing that Winslyn was aware of the contract. Empire must establish that Winslyn knew of "the existence of the contract" or "facts from which a contract could reasonably have been inferred." Wheel Masters ,
Empire has presented evidence permitting a finding that Winslyn knew Fireclay had a contractual obligation to another party. On June 19, after telling Fireclay that Menard's was interested in the sink models Fireclay was to make for Empire, Stuebner received an e-mail from Fireclay depicting the sinks that Fireclay would manufacture for Winslyn. PX 40 at WINSLYN00000897 (June 19, 2017 Stuebner e-mail to Woodhead). The pictures were of sinks considerably different from the Empire models Winslyn had first been shown; as Stuebner said, the pictures were "significantly different than the models of the original pricing sheet ... Is there some
If Winslyn is contending that Fireclay had already breached the contract by the time Winslyn learned of it, the Court disagrees. A contract imposing a continuous obligation may be breached multiple times if the breach is partial, but just once if the breach is material. Hi-Lite Prods. Co. v. Am. Home Prods. Co. ,
C. Intentional inducement
Third, there is evidence tending to establish that Winslyn intentionally induced Fireclay to breach its contract with Empire. Empire attempts to argue that Winslyn acted intentionally by remaining willfully ignorant of Empire's contractual rights, citing Downers Grove Volkswagen, Inc. v. Wigglesworth Imports, Inc. ,
Illinois law "requires more than the knowledge that one's conduct is substantially certain to result in one party breaking its contract with another"; the party must engage in "some active persuasion, encouragement, or inciting that goes beyond merely providing information in a passive way." The Pampered Chef v. Alexanian ,
Empire has met its burden. After Fireclay informed Winslyn that it could not sell it the sinks that Goren designed, Fireclay offered a replacement sink. But Stuebner
Q. So at the end of that call, the conclusion was that notwithstanding that another customer had rights to the design, another customer had the rights to the mold, Tony was going to sell you the sink anyway, correct?
A. After the phone call, he told me, correct.
Winslyn contends that its conduct was not intentional, because it had no knowledge that Fireclay was breaching a contract: it merely asked for the sinks to sell to its customers, and Fireclay provided sinks. But that argument is torpedoed by Wood's earlier references to an agreement not to sell sinks with this design to anyone other than the party he described as having the design rights. The tort of intentional interference with contract extends to conduct in which the party "knows that the interference is certain or substantially certain to occur as a result of his action." Restatement (Second) of Torts § 766 cmt. j; JamSports & Entm't, LLC v. Paradama Prods., Inc. ,
D. Breach caused by inducement
Fourth, the Court finds Empire is reasonably likely to succeed on showing that Winslyn's inducement caused Fireclay to breach its agreement with Empire. Empire must show it has a reasonable chance of prevailing on two questions: whether a breach occurred and, if so, whether Winslyn's inducement caused that breach.
The first question is whether a breach occurred, that is, whether production of the sinks for Winslyn amounted to a breach of Fireclay's promise to produce Empire's designs exclusively for that company. This is a question of fact that a jury ultimately will have to resolve. See, e.g., Stevens v. Protectoseal Co. ,
As memorialized in an e-mail between Wood and Stuebner, Fireclay created a sink for Winslyn in which an Olde London mold created for Empire was modified, albeit slightly: "We need to amend the mould on the 018 to have a rebate off 7.5mm as we have now take a live order for the existing mould[.]" DX 33 at WINSLYN00001027 (June 28, 2017 Wood e-mail to Stuebner). Wood sent a follow-up e-mail to assure Winslyn that "You won't tell any difference of [sic] the photo shop."
In challenging Empire's contention that Fireclay's production of sinks for Winslyn constituted a breach of an enforceable contractual obligation between Fireclay and Empire, Winslyn argues that there was nothing about the design that amounted to a trade secret or protectable intellectual property and that, as a result, Empire cannot complain about Fireclay's sale of similar sinks to others. In this regard, the parties dispute the applicability of several authorities addressing whether an idea or design must be novel or new in order to be subject to a legally enforceable confidentiality undertaking. See, e.g., Nadel v. Play-By-Play Toys & Novelties, Inc. ,
The Court concludes Empire has a reasonable likelihood of success on its contention that Fireclay breached their agreement and that Winslyn induced the breach. As Empire argues, Fireclay initially refused to sell Empire's sinks to Winslyn, noting that there was another party that had the rights to the sink; Stuebner, on behalf of Winslyn, expressed his displeasure with Fireclay's decision and insisted on getting the sinks whose design he had
E. Injury
Finally, Empire is reasonably likely to show it was damaged by the breach. Specifically, there is sufficient evidence that Winslyn's sale of the sinks has endangered Empire's relationship with customers, threatened the pricing that it wished to use for the sinks, and cost it revenue in the form of sales that Winslyn obtained and, potentially, the revenues foregone by the lower prices Winslyn fostered. For instance, one of Winslyn's customers expressed its intent to "disrupt" the pricing of farmhouse-style fireclay sinks. PX 37 at WINSLYN00005192 (Mar. 23, 2017 Stuebner e-mail to Shilling). And although the breach that Winslyn induced has occurred, it will continue to benefit from the breach, to Empire's detriment, unless and until it is enjoined from doing so.
In sum, Empire has shown a reasonable likelihood of success on its claim that Winslyn intentionally interfered with Empire's contractual relationship with Fireclay.
II. Remaining preliminary injunction factors
Empire must demonstrate "it will suffer irreparable harm in the interim period prior to final resolution of its claims" and that "traditional legal remedies would be inadequate." Girl Scouts ,
Initially, the Court addresses two points cited by Winslyn that it contends weigh against extending any equitable relief to Empire. First, Winslyn contends that Empire has moved too slowly in its attempt to obtain an injunction. "Delay in pursuing a preliminary injunction may raise questions regarding the plaintiff's claim that he or she will face irreparable harm if a preliminary injunction is not entered." Ty, Inc. ,
Next, Winslyn argues that Goren, who purportedly lied to Fireclay by stating he retained intellectual property attorneys in 2017, has unclean hands, which precludes Empire from obtaining equitable relief. Pampered Chef ,
The next question is whether Empire has suffered or will suffer irreparable
Winslyn disputes Empire's characterization and contends Empire will not be harmed, as it does not have any customers or market share for these sinks-Empire can't suffer injuries from changes in pricing or distribution of market share if it doesn't have customers. Even if Empire had no current injury, part of the purpose of an injunction is to prevent future harm. That aside, Winslyn's argument cuts against Winslyn as much as it does against Empire. If Empire worked for months to design a sink yet now has no revenue to show for it, that is indicative that Empire has been harmed. Winslyn further argues that Empire has failed to present evidence of the injuries it describes. But "a legal rule that irreparable injury can be established only by a concrete demonstration would make injunctions useless as a practical matter.... it is precisely the difficulty of pinning down what business has been or will be lost that makes an injury 'irreparable.' " Lifetec, Inc. v. Edwards ,
Empire has also sufficiently shown the inadequacy of its remedy at law. "[T]here are cases in which the normal remedy for a breach of contract, namely damages, is inadequate, and those are cases in which the victim of an alleged breach can seek preliminary relief." Chi. United Indus., Ltd. v. City of Chicago ,
The Court next considers the injuries that Winslyn would suffer from the imposition of an injunction. Winslyn contends that it will suffer significant harm, as it is a young company that would lose the confidence of its customers if it were no longer able to sell its sinks. But, as Empire notes, Winslyn will not be enjoined from operating altogether: the injunction would only bar it from buying sinks that
Having balanced the various interests "sitting as would a chancellor in equity ... seeking at all times to minimize the costs of being mistaken." Abbott Labs. v. Mead Johnson & Co. ,
III. Security
Under Federal Rule of Civil Procedure 65, "[t]he court may issue a preliminary injunction ... only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." Fed. R. Civ. P. 65(c). "The purpose of an injunction bond is to compensate the defendant, in the event he prevails on the merits, for the harm that an injunction entered before the final decision caused him[.]" Ty, Inc. v. Publications Intern. Ltd. ,
Conclusion
For the foregoing reasons, the Court grants Empire's motion for a preliminary injunction [dkt. no. 15]. Upon posting of the required bond, and pending entry of a more detailed order, the Court enjoins Winslyn Industries, LLC and anyone affiliated or acting in concert with it, pending the trial or other disposition of this case, from purchasing, marketing, or selling sinks obtained from The Fireclay Factory, LLC based on plaintiff Empire Industries, LLC's Olde London and Sutton Place designs, including Winslyn's BTL041, 43, 50, and 52 models. The case is set for a status hearing on July 2, 2018 at 9:30 a.m.
Notes
Wood and Woodhead's relationship to Niko, and Niko's relationship to Fireclay, are not quite clear from the record, but it does not appear that the specifics of either relationship are material to the resolution of this case.
Each citation to Stuebner's testimony in this opinion relies on the rough transcript of his testimony, which was the only version available at the time of decision.
The parties have introduced evidence that the Olde London model was modified by adjusting the position of the rebate; it is unclear what changes, if any, were made to the Sutton Place model.
Winslyn contends Fireclay and Niko have not yet been served with process and they are not before the Court. But Empire does not seek to enjoin Fireclay or Niko, so the Court need not resolve this dispute now.
The Court thus does not resolve Winslyn's arguments regarding purported intellectual property rights, Winslyn Resp. to Pl.'s Mot. for Prelim. Inj. at 14-15, Winslyn Closing Args. in Opp. to Pl.'s Mot. for Prelim. Inj. at 3, or its "misappropriation and implied confidentiality theories," Winslyn Resp. to Pl.'s Am. and Supp. Mem. of Law at 8.
This is why, for instance, a plaintiff can seek a preliminary injunction for a breach of contract that occurred wholly in the past. See, e.g., Am. Hosp. Supply Corp. v. Hosp. Prods. Ltd. ,
Empire tries to avoid Winslyn's at-will contract argument by suggesting that New Jersey law, not Illinois law, governs this issue. But it is a little late to argue this, especially as Empire itself previously used Illinois law to support its request for an injunction. In any event, the choice of law would not change the outcome on this issue.
Empire also relies on less persuasive authorities to illustrate continuous breaches; the Court does not address the relevance of these cases here. Neuromonitoring Assocs. v. Centura Health Corp. ,