AFA Dispensing Group B.V. v. Anheuser-Busch, Inc.

• Decision Date: 18 August 2010
• Docket Number: No. 10 Civ. 5565(VM),10 Civ. 5565(VM)
• Parties: AFA DISPENSING GROUP B.V. and Dispensing Technologies B.V., Plaintiffs, v. ANHEUSER-BUSCH, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

740 F.Supp.2d 465

AFA DISPENSING GROUP B.V. and Dispensing Technologies B.V., Plaintiffs,

v.ANHEUSER-BUSCH, INC., Defendant.

No. 10 Civ. 5565(VM).

United States District Court,

S.D. New York.

Aug. 18, 2010.

Matthew Joel Sava, Shapiro Mitchell Forman Allen & Miller LLP, New York, NY, for Petitioners.

Richard Corey Worcester, Howrey LLP, New York, NY, for Respondent.

DECISION AND AMENDED ORDER

VICTOR MARRERO, District Judge.

By Order dated July 27, 2010, the Court denied the motion of plaintiffs AFA Dispensing Group B.V. ("AFA") and Dispensing Technologies B.V. ("DT") (together, "Plaintiffs") seeking a temporary restraining order and preliminary injunction (1) to order specific performance of contracts between Plaintiffs and defendant Anheuser-Busch, Inc. ("A-B") and (2) to enlarge the time the parties have to commence arbitration pursuant to the same contracts. The Court now sets forth its findings, reasoning, and conclusions.

I. BACKGROUND ¹

Plaintiffs are Netherlands-based development and production companies that specialize in liquid dispensing systems. A-B, a corporation organized under the laws of Missouri, is a large producer of beer in America and maintains an executive office in New York City.

In 2008, A-B partnered with Plaintiffs to develop, produce, and sell a home draught product that dispenses malt beverages through an appliance that fits inside consumers' refrigerators. Both A-B and Plaintiffs have proprietary dispensing technologies ("Thunderbird" and "Flair", respectively) that can be used with the home draught product.

Plaintiffs and A-B initially agreed to use Plaintiffs' Flair technology in the home draught product. After being acquired by InBev, a Belgian beverage company, A-B communicated its desire to use Thunderbird exclusively and offered AFA the opportunity to supply the equipment for its production. AFA decided that entering the United States market with the nation's largest beer company outweighed its desire to use its own Flair technology in the draught product and agreed to forego the use of Flair in the new product. Consequently, in December 2009, the parties signed a series of agreements, including a Supply Agreement. ( See Worcester Decl., Ex. A ("Supply Agreement").)

The Supply Agreement made AFA the exclusive supplier of the bottles to be used in the home draught product and contained a number of provisions relating to arbitration between the parties. First, § 17(a) requires that

any controversy or dispute arising out of or in connection with this [Supply] Agreement its interpretation, performance or termination ("Dispute") that the Parties are unable to resolve within ninety (90) days after written notice by one Party to the other of the existence of such Dispute will be submitted to arbitration.

( Id. § 17(a).)

In addition, § 17(c) provides that

[i]n the event of any Dispute, the parties shall continue to perform their respective obligations under this Agreement during the pendency of arbitration proceedingsunless and until the arbitral tribunal otherwise orders.

( Id. § 17(c).)

Finally, § 17(b) stipulates that the parties are entitled to injunctive relief in certain circumstances relating to arbitration:

[E]ach party shall be entitled to injunctive relief ... restraining the breach or threatened breach of each obligation under this Agreement and to specific performance of each obligation under this Agreement. The Parties agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach of any obligation under this Agreement ....

( Id. at § 17(b).)

The Supply Agreement also contains a non-competition clause in § 1(k), and § 7(g) provides that the non-competition requirement remains in force following termination, in certain circumstances, of the contract. Section 12 incorporates a separately executed non-disclosure agreement.

Soon after parties' agreements were in place, Ariel Gratch ("Gratch"), the managing director of AFA and DT, expressed concerns with the "market readiness" of Thunderbird. Tensions between A-B and Plaintiffs escalated and, on June 7, 2010, Gratch sent A-B an email demanding that A-B and AFA "immediately find an alternative to the current business deal." ( See Worcester Decl., Ex. B at 3.) Gratch gave A-B two alternatives: (1) replace Thunderbird with AFA's Flair technology in the new product, or (2) continue with Thunderbird, which, according to Gratch, would require the complete severance of Plaintiffs' and A-B's relationship and "compensation ... for [AFA's] damages including its exclusion from other opportunities." ( Id.) Gratch's June 7 email spawned further exchanges between AFA and A-B that eventually culminated in what can charitably be described as a breakdown of their business relationship.

A-B replied to Gratch that his June 7 ultimatum amounted to a repudiation of the Supply Agreement and subsequently sent a letter requesting that Gratch provide "unqualified written assurance that [AFA] can and will fulfill all of its obligations under the Supply Agreement." (Worcester Decl., Ex. E at 3.) According to A-B, Gratch did not provide the requested assurance and A-B wrote to AFA, on July 9, 2010, stating, "[A-B] has no choice but to consider AFA's repudiation final." ( See id., Ex. G at 1.)

AFA, on the other hand, contends that it responded to A-B's request with sufficient unequivocal assurances. ( See Verified Petition ¶ 30.) In response to A-B's July 9 letter, AFA, on July 14, 2010, sent to A-B a formal Notice of Dispute pursuant to § 17(a) of the Supply Agreement. ( See id., Ex. H ("Notice of Dispute").) In the Notice of Dispute, AFA declared that A-B was in "material breach" of § 17(c) of the Supply Agreement for terminating performance prior to the completion of arbitration. (Notice of Dispute at 4.) AFA stated that it intended to pursue an injunction if A-B did not "unequivocally confirm its commitment to perform" by July 16, 2010. ( Id.)

On July 16, 2010, A-B filed a complaint in federal court in the Eastern District of Missouri, seeking declaratory relief that AFA repudiated and breached the Supply Agreement, as well as an injunction enforcing the Supply Agreement's confidentiality and non-compete provisions, and preventing AFA from forcing A-B to perform under the Supply Agreement. See Complaint, Anheuser-Busch, Inc. v. AFA Dispensing Grp. B.V. & Dispensing Tech. B.V., No. 4:10-CV-0126 (July 16, 2010 E.D. Mo.) ("Missouri Complaint"). A-Bpurports to have served AFA in that action through an office AFA maintains in Missouri.

Two days after learning of the Missouri Complaint, AFA filed the Verified Petition in New York State Supreme Court, New York County, on July 21, 2010, seeking to compel A-B's continued performance under the Supply Agreement pending the final determination of the parties' arbitration. ( See Gratch Aff. ¶ 4 ("A[FA] seeks an order requiring [A-B] ... to continue performing the Supply Agreement....").) Before any action was taken in the state court, A-B, invoking diversity jurisdiction, removed Plaintiffs' petition to this Court on July 22, 2010. The Court held a telephone conference with the parties on July 22, 2010 and denied Plaintiffs' request for injunctive relief by Order dated July 27, 2010.

II. DISCUSSION

A. THE FIRST-FILED RULE

A-B argues that this action should be dismissed or stayed because the same issues are being litigated in a lawsuit earlier filed in the Eastern District of Missouri. The so-called first-filed rule provides that "[w]here an action is brought in one federal district court and a later action embracing the same issue is brought in another federal court, the first court has jurisdiction to enjoin the prosecution of the second action." Meeropol v. Nizer, 505 F.2d 232, 235 (2d Cir.1974). This rule "gives priority to the first-filed suit except where there are special circumstances which justify giving priority to the second-filed suit or a showing of a balance of circumstances favor[s] the second-filed suit." CGI Solutions LLC v. Sailtime Licensing Grp., LLC., No. 05 Civ. 4120, 2005 WL 3097533, at *2 (S.D.N.Y. Nov. 17, 2005) (quotation marks omitted) (alteration in original). "The first-filed rule is not to be applied mechanically but the party that seeks to deviate from the rule has the burden of demonstrating that circumstances justifying an exception exist." Citigroup Inc. v. City Holding Co., 97 F.Supp.2d 549, 555-56 (S.D.N.Y.2000). The Court is persuaded that special circumstances here warrant an exception to the first-filed rule.

"Anticipatory filings constitute a special circumstance permitting departure from the first-filed rule." CGI Solutions, 2005 WL 3097533, at *3. In particular, "when a party sends a notice-of-suit letter to its opponent, and the opponent thereby files a declaratory judgment action, there is reason to find that the first-filed action is an anticipatory filing." Id. A gauge for measuring the effect of a notice-of-suit letter is how clearly the party sending the letter demonstrates its intention and resolve to file suit. Compare Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 217-19 (2d Cir.1978) (letter stating that the opposing party would be "subject to a lawsuit for injunctive relief, damages and an accounting" unless they discontinued sales of the infringing product is sufficient notice-of-suit), overruled on other grounds by Pirone v. MacMillan, Inc., 894 F.2d 579, 585-86 (2d Cir.1990) with Employers Ins. of Wausau v. Prudential Ins. Co. of Am., 763 F.Supp. 46, 48 (S.D.N.Y.1991) (letter asserting that party "hoped to avoid litigation" failed to sufficiently notify the opposing party of intent to litigate).

Here, the Notice of Dispute states in relevant part that A-B "has until 5PM EDT Friday July 16 to unequivocally confirm its commitment to perform under our [Supply] Agreement or it will face an injunction motion." (Notice of Dispute at 4.) By articulating a particular date and the specific form of relief sought, it is clear that...