Kowalski v. Chicago Tribune Co., 88-1626

• Decision Date: 22 July 1988
• Docket Number: No. 88-1626,88-1626
• Citation: 854 F.2d 168
• Parties: , 1988-2 Trade Cases 68,173, 15 Media L. Rep. 2451 Richard J. KOWALSKI and Hoffman News Agency, et al., Plaintiffs-Appellants, v. CHICAGO TRIBUNE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 168

854 F.2d 168

57 USLW 2113, 1988-2 Trade Cases 68,173,

15 Media L. Rep. 2451

Richard J. KOWALSKI and Hoffman News Agency, et al., Plaintiffs-Appellants, v. CHICAGO TRIBUNE COMPANY, Defendant-Appellee.

No. 88-1626.

United States Court of Appeals,

Seventh Circuit.

Argued May 13, 1988.

Decided July 22, 1988.

Paul E. Slater, Sperling, Slater & Spitz, P.C., Chicago, Ill., for plaintiffs-appellants.

James A. Klenk, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., for defendant-appellee.

Before BAUER, Chief Judge, and CUDAHY and POSNER, Circuit Judges.

POSNER, Circuit Judge.

Eighty-four former distributors of the Chicago Tribune brought this suit against the Tribune's publisher, charging breach of contract and violation of the antitrust laws. The district court refused to grant a preliminary injunction, and the plaintiffs (apart from those who have settled) have appealed. See 28 U.S.C. Sec. 1292(a)(1).

Early in this decade the plaintiffs signed contracts making them independent distributors of the Tribune in defined areas, mostly in Chicago's suburbs. This meant that the plaintiffs bought copies of the newspaper from the defendant and resold them to home subscribers and other retail purchasers in their areas. The contracts are uniform and contain elaborate provisions regarding termination--a feature that was necessary since the contracts were to run for ten years. Each contract authorizes the Tribune Company to terminate it "at any time upon thirty days' written notice if such termination is made pursuant to notification sent simultaneously to [all the distributors], announcing a change by Publisher in its method of sale and distribution," provided that the publisher simultaneously "offer[s] to Distributor an alternate means of participation in servicing subscribers in Distributor's Area of Primary Responsibility, either as agent or employee." But the Tribune Company must compensate a terminated distributor for the loss of his contractual rights. If the parties cannot agree on the value of those rights the matter must be submitted to arbitration for a determination of their value, and if the arbitrator decides that the termination was not for "just cause" he is to add 20 percent to the distributor's compensation, as damages. The contracts make arbitration the "exclusive remedy to resolve any dispute concerning the termination of a Distributor," the distributors having "expressly" waived any "right to any remedy in a court of law." Finally, the contracts forbid the arbitrators to reinstate a terminated distributor.

In the fall of last year the Tribune Company announced that it was going over to a "delivery agent" system, and offered the plaintiffs agency contracts in place of their independent-distributor contracts, which it announced it was terminating. Under the agency contract the Tribune Company would fix the retail price of the Tribune, assume the risk of loss or nonpayment of newspapers, assume responsibility for customer complaints, and purchase and lease back the principal assets of the (former) distributors. The plaintiffs declined the offer and instead brought this suit to enjoin their termination, contending that it is part of an illegal price-fixing scheme (presumably embodied in the agency contracts), and also a breach of contract because the change from independent distribution to agency distribution is not a change in the publisher's "method of sale and distribution." The Tribune Company has replaced the plaintiffs with new agents, each of whom handles a small number of subscribers and has signed the agency contract that the plaintiffs refused to sign. The parties agree that the plaintiffs can still obtain arbitration if they are dissatisfied with the defendant's valuation of their lost rights under the terminated contracts.

A request for a preliminary injunction is evaluated in accordance with a "sliding scale" approach: the more the balance of irrevocable harms inclines in the plaintiff's favor, the smaller the likelihood of prevailing on the merits he need show in order to get the injunction. See, e.g., Curtis v. Thompson, 840 F.2d 1291, 1296 (7th Cir.1988); American Hospital Supply Corp. v. Hospital Products Ltd., 780 F.2d 589, 593-94 (7th Cir.1986). The common sense of the approach is shown by the limiting case, in which the injunction would do no harm at all to the defendant but denial of the injunction would wreak massive and irrevocable harm on the plaintiff; even if the plaintiff had only a modest chance of prevailing when the case was fully tried, it would make sense to grant the injunction pending the trial, against the chance that he might win after all. The plaintiffs in this case rely heavily on this approach, arguing that unless their chance of winning is "less than negligible" they ought to get the injunction. This is a garbled version of the circuit's standard, which is that the plaintiff must show that its chances " 'are better than negligible.' " Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 387 (7th Cir.1984). But there is a deeper problem with the plaintiffs' argument: they have failed to show that the injunction is necessary to avert any harm to them, let alone to avert massive harm not offset by comparable harm to the defendant if the injunction is granted. The requirement that a plaintiff show that its chances for winning on the merits are better than negligible is a necessary rather than sufficient condition for the grant of a preliminary injunction.

The terms of the distribution contracts, entered into by mature businessmen who do not claim to have been hoodwinked or coerced, scotch any contention that the plaintiffs face irreparable harm--harm not fully compensable by an award of monetary relief by the arbitrators--as a result of the termination of the contracts. Contemplating the possibility that the defendant might terminate these contracts with only thirty days' notice, and the consequences if it did so, the plaintiffs agreed that if that happened their only remedy would be to seek a monetary award by an arbitrator--even if the Tribune Company was acting wrongfully, that is, was breaking the contracts rather than terminating them in accordance with their terms. The plaintiffs could have negotiated for some form of equitable relief in the event of termination but they evidently decided that monetary relief would be adequate and expressly waived any other form of remedy. They argue now that they never surrendered their right to seek equitable relief from a court in the event of an unjust termination, but we cannot understand how this jibes with the provision in the agreements that makes arbitration the parties' "exclusive remedy to resolve any dispute concerning the termination of a Distributor" (emphasis added). In any event, both the elaborate provisions for monetary relief in the distributor agreements and the disavowal of equitable relief in the arbitration clause of the agreements are powerful evidence that the plaintiffs believed that financial compensation--which they can still obtain in arbitration--was an adequate remedy for the termination of the agreements.

A prerequisite to a preliminary injunction, as to other forms of equitable relief, is a showing that the plaintiff's remedy at law is inadequate. See id. at 386. The principle embraces a case such as this, where the plaintiffs agreed that monetary relief in arbitration would be the only remedy for a breach of contract. Compare Auburn News Co. v. Providence Journal Co., 659 F.2d 273, 277 (1st Cir.1981). Their present argument that arbitration would be "a hollow formality" unless the Tribune Company is enjoined from terminating the distributorship contracts itself rings hollowly, since the arbitral remedy in the contracts envisages that the distributor has been terminated and forbids the arbitrator to reinstate a terminated distributor, whether on a permanent or interim basis.

The waiver of judicial remedies in the distributorship contracts may or may not embrace a request for an injunction to correct a violation of the antitrust laws (more on this later), but if it does not, still that would not affect our evaluation of the issue of irreparable harm. A single injury is alleged: the termination of the distributor contracts. Whatever the theory on which the plaintiffs seek equitable relief, the remedial provisions in the agreements show that their remedy at law (as we may for these purposes describe monetary relief in arbitration) is adequate. This is not to say that the remedy specified in a contract is always the truest measure of a party's injury in the event of breach; the refusal of courts to enforce contractual penalty clauses, see, e.g., Lake River Corp. v. Carborundum Co., 769 F.2d 1284, 1288-92 (7th Cir.1985), suggests it is not. In this case, however, there is no reason to doubt either the propriety or the adequacy of the remedial measures to which the plaintiffs agreed in the distributorship contracts.

A brief consideration of the merits,...