Ohio-Sealy Mattress Mfg. Co. v. Duncan

• Decision Date: 30 January 1980
• Docket Number: No. 79 C 2741.,79 C 2741.
• Citation: 486 F. Supp. 1047
• Parties: OHIO-SEALY MATTRESS MANUFACTURING CO. et al., Plaintiffs, v. Louis C. DUNCAN et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

486 F. Supp. 1047

OHIO-SEALY MATTRESS MANUFACTURING CO. et al., Plaintiffs, v. Louis C. DUNCAN et al., Defendants.

No. 79 C 2741.

United States District Court, N. D. Illinois, E. D.

January 30, 1980.

COPYRIGHT MATERIAL OMITTED

Frederic F. Brace, Jr., William F. Conlon, Sidley & Austin, James K. Gardner/Thomas P. Holden, Ralph T. Russell/Phil C. Neal, Chicago, Ill., for plaintiffs.

John H. Matheson, Hedlund, Hunter & Lynch, Hunter, Howard R. Koven/Friedman & Koven, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge.

This action represents yet another chapter in the seemingly endless antitrust litigation concerning Sealy, Inc. ("Sealy").¹ The principals herein are Sealy,² Ohio-Sealy Mattress Manufacturing Company ("Ohio"),³ and Sealy Mattress Company of Oregon ("Portland").⁴ Ohio filed this action against Sealy in July, 1979, alleging that Sealy, its directors, and licensees were engaged in a continuing conspiracy to effect a horizontal territorial allocation of the market for Sealy products. The complaint further alleges a breach of the fiduciary duty by the named directors of Sealy.

On November 19, 1979, Ohio sought leave to file a Supplemental Complaint consisting of two additional counts against Sealy arising from its decision to purchase Portland.⁵ In August, 1979, Ohio entered into a stock purchase agreement with Portland. Pursuant to the agreement, the stockholders of Portland agreed to sell to Ohio all their shares for $7,250,000 and 112,500 shares of Ohio common stock. Sealy also agreed to indemnify each Portland stockholder up to the aggregate sum of $6,250,000 against any adverse judgment entered against them in the Sealy litigation.

In accordance with the Sealy License Agreement, Portland and Ohio notified Sealy of the intended acquisition. Sealy's board of directors met in September, 1979, to consider whether Sealy should exercise its right of first refusal. In early October, Sealy authorized the purchase of 112,500 shares of Ohio common stock in order to enable Sealy to match Ohio's offer if it so chose. By November 13, 1979, Sealy had succeeded in purchasing 112,500 shares of Ohio common stock on the open market. On that same day, the board of directors met and voted to purchase Portland by exercising the right of first refusal. Portland was notified of this action the following day, and chose to go forth with the sale to Sealy rather than exercise its right to withdraw the offer to sell. The closing date for the purchase was scheduled for January 3, 1980.

In its supplemental complaint of November 19, Ohio alleges that Sealy's exercise of the right of first refusal with respect to Portland failed to comply with the contractual requirements for an exercise of that right, constituted tortious interference with Ohio's contractual relationship with Portland, and violated federal antitrust law.⁶ At the same time, Ohio filed a motion for a preliminary injunction, seeking to prevent Sealy from closing its purchase of Portland. On December 6, the Court assigned this, as well as an earlier related case involving Sealy,⁷ to a magistrate for supervision of all pretrial matters, and for the submission of proposed findings of fact and conclusions of law with respect to the motion for a preliminary injunction. 28 U.S.C. § 636(b)(1)(A), (B).

The magistrate held an evidentiary hearing on the motion for preliminary injunctive relief for six trial days, from December 13-21, 1979.⁸ During this period, Portland moved to intervene in the motion, alleging that its stockholders would be irreparably harmed if the sale were not permitted to close on January 3, 1980. Leave to intervene was granted, and Portland thereafter filed a document objecting to the attempt to enjoin the sale.⁹ At the close of the evidentiary hearing, Ohio and Sealy stipulated to an extension of the closing date until January 31, 1980, an extension which is provided for in the purchase agreement.¹⁰

On January 16, 1980, the magistrate issued his proposed findings of fact and conclusions of law. He concluded that there was a likelihood that Ohio would prevail on the merits of its antitrust claims, but not on its contract and tort theories. The magistrate also determined, however, that Ohio would suffer no irreparable harm if Sealy were allowed to close the sale and Ohio later prevailed on the merits. As to the balance of hardships, he found that the harm that would flow to Ohio from failing to enjoin the purchase was no greater than was the harm that would accrue to Sealy if an injunction were issued.¹¹ Finally, the magistrate concluded that issuance of an injunction would not be contrary to the public interest.

On the basis of these conclusions, the magistrate recognized that injunctive relief normally would fail to issue, since there was no proof of irreparable harm to the moving party. He observed, however, that the legality of Sealy's various licensing provisions—including the right of first refusal—currently is being litigated before another judge in this district.¹² Since the magistrate believed that the outcome therein might be determinative as to whether Ohio or Sealy is entitled to purchase Portland, he recommended that both Ohio and Sealy be enjoined from purchasing Portland pending the ruling in Sealy. Yet, due to the harm that might result to Portland from prolonged uncertainty as to the identity of the ultimate purchaser, the magistrate recommended that if a ruling on the equitable issues in Ohio-Sealy is not issued by April 30, 1980, then Sealy should be permitted to close its purchase with Portland at that time. Alternatively, the magistrate recommended that Sealy be permitted to close its purchase with Portland as scheduled on January 31, 1980, but that the closing should be subject to a "hold-separate" order which provides for the remedy of divestiture if Ohio prevails on the merits.

Pursuant to 28 U.S.C. § 636(b)(1), the parties were given ten days to file written comments on and objections to the magistrate's recommended findings and conclusions. All parties have done so.¹³ Upon consideration of the evidence presented before the magistrate, his findings and recommendations, and the objections posed by the parties, the Court finds that Ohio is not entitled to an injunction prohibiting Sealy from closing its purchase of Portland. Rather, the Court adopts the magistrate's alternative recommendation, that the sale of Portland to Sealy be permitted to go forth on January 31, 1980, subject to a hold-separate order.

I. The Standards For Preliminary Injunctive Relief

A preliminary injunction is a vehicle by which the conduct of a party may be prohibited prior to any conclusive determination on the merits that the conduct in question is in fact illegal or inappropriate. For this reason, the case law has recognized that a preliminary injunction is an extraordinary remedy "not to be indulged in except in a case clearly warranting it." Fox Valley Harvestore, Inc. v. A. O. Smith Harvestore Products, Inc., 545 F.2d 1096, 1097 (7th Cir. 1976). It is within the discretion of the Court to grant a motion for preliminary injunctive relief when the moving party satisfies its burden of persuasion as to each of the following prerequisites: (1) an inadequate remedy at law and irreparable harm in the absence of an injunction; (2) the threat of harm to the movant outweighs the harm that would result to the opposing party if an injunction issues; (3) at least a reasonable likelihood that the moving party will prevail on the merits; and (4) the public interest will not be disserved by the granting of injunctive relief. Fox Valley, 545 F.2d at 1097; see also Citizens Energy Coalition of Indiana v. Sendak, 594 F.2d 1158, 1162-1163 (7th Cir. 1979); Local Division 519, Amalgamated Transit Union, AFL-CIO v. LaCross Municipal Transit Authority, 585 F.2d 1340, 1351 (7th Cir. 1978).

A. Irreparable Harm and Inadequacy of Legal Remedies

It is beyond dispute that "the basis for injunctive relief in the federal courts has always been irreparable harm and inadequacy of legal remedies." Sampson v. Murray, 415 U.S. 61, 88, 94 S.Ct. 937, 952, 39 L.Ed.2d 166 (1974); Beacon Theatres v. Westover, 359 U.S. 500, 506-507, 79 S.Ct. 948, 954-955, 3 L.Ed.2d 988 (1959); Fox Valley, 545 F.2d at 1098. At the outset, however, Ohio argues that this high standard need not be met in a case where the party seeking the injunction establishes a clear probability of success on the merits; that in such cases, it is sufficient to show merely a "possibility" of irreparable injury. Although there are some cases which suggest this less stringent standard of irreparable harm,¹⁴ this has never been the rule in the Seventh Circuit.¹⁵ It must be remembered that the conduct enjoined by a preliminary injunction is presumptively legal.¹⁶ Indeed, this is why the preliminary injunction is considered an extraordinary remedy. Yet, adoption of plaintiff's "possibility" standard for determining irreparable harm would dilute seriously the extraordinary nature of injunctive relief by making it more readily available.¹⁷ Moreover, it would do so without advancing the underlying purposes of preliminary injunctions. A movant needs the protection of a preliminary injunction only when threatened with injury that could not be remedied even if in the future he prevailed on the merits. If a movant cannot persuade the court that there is more than a mere "possibility" of such harm, then he should not be entitled to the benefits of preliminary injunctive relief.

Ohio argues that it will suffer irreparable harm in three ways if an injunction does not issue. First, it argues that if it prevails at trial, it will be unable to prove fully the amount of profits it lost as a result of the unlawful acquisition of Portland. Not only will it be impossible to determine the extent to which Ohio could have increased the sales within Portland's area of primary responsibility (APR),¹⁸...