Rohm v. Elec. Circuits Supplies Inc.

• Decision Date: 22 December 2010
• Docket Number: Civil Action No. 10–10563–JLT.
• Citation: 759 F.Supp.2d 110
• Parties: ROHM AND HAAS ELECTRONIC MATERIALS, LLC, Plaintiff,v.ELECTRONIC CIRCUITS SUPPLIES, INC., Defendant.
• Court: U.S. District Court — District of Massachusetts

759 F.Supp.2d 110

ROHM AND HAAS ELECTRONIC MATERIALS, LLC, Plaintiff,

v.ELECTRONIC CIRCUITS SUPPLIES, INC., Defendant.

Civil Action No. 10–10563–JLT.

United States District Court, D. Massachusetts.

Dec. 22, 2010.

Stephen J. Brake, Eric N. Shor, Nutter, McClennen & Fish, LLP, Boston, MA, for Plaintiff.Daniel P. Dain, Brennan Dain Le Ray & Wiest, P.C., Boston, MA, for Defendant.

MEMORANDUM

TAURO, District Judge.I. Introduction

Rohm and Haas Electronic Materials, LLC (“Plaintiff”) asserts that Electronic Circuits Supplies, Inc. (“Defendant”), a former distributor of one of Plaintiff's goods, committed fraud and deceit by deleting a material term in a prior non-competition provision while the Parties were amending another portion of their distributorship agreement. Plaintiff also claims that Defendant is misappropriating Plaintiff's goodwill and confidential information by breaching the Parties' agreement. Presently at issue is Plaintiff's Motion for Preliminary Injunction [# 3]. Plaintiff seeks to enjoin Defendant and its agents, representatives or other persons authorized to speak or act on Defendant's behalf from selling the same, similar, or competitive products to Plaintiff's customers for one year. For the following reasons, Plaintiff's Motion for Preliminary Injunction is DENIED.

II. Background

Most of the material facts are undisputed.¹ Plaintiff manufactures and distributes electronic products that are used in manufacturing printed circuit boards.² Prior to December 31, 2007, Plaintiff sold some of its products directly to customers and also used a network of exclusive distributors.³ Plaintiff's network of distributors is responsible for maintaining direct relationships with customers by providing logistical and technical support to the customers. The distributors purchase products from Plaintiff and sell the products to customers.⁴ Plaintiff has around 15,000 employees and generated sales nearing nine billion dollars in 2007. ⁵ Plaintiff is a subsidiary of Dow Chemicals, and Dow has 46,000 employees and generates annual sales around fifty billion dollars per year. ⁶

Since 1991, Defendant has had a network of customers in the Mid–Atlantic and New England regions on behalf of chemical manufacturers, including those creating chemicals for use in circuit boards and chemical milling industries. ⁷ Defendant has five employees, including its President and co-owner. ⁸ Defendant generates around four million dollars in revenue per year. ⁹ Defendant was Plaintiff's distributor for certain customer accounts. ¹⁰

A. The Parties' Agreement

Plaintiff entered into an Amended and Restated Distributor Agreement (“Agreement”) with Defendant, which made Defendant the exclusive distributor of Plaintiff's products in a specific territory that included New Jersey, New York, Pennsylvania, and Virginia (“Territory”).¹¹ Massachusetts law governed the Agreement.¹²

In the Agreement, Defendant agreed not to sell products that competed with Plaintiff's products during the period of the Agreement and for twelve months following its termination.¹³ Additionally, Defendant would not be allowed to sell competitive products as long as Defendant violated its non-competition obligations and for any period required for litigation to enforce these obligations.¹⁴

The Agreement also required Defendant to agree that goodwill accrued solely to Plaintiff and that Plaintiff owned all rights, title, and interest to its products.¹⁵ Additionally, Plaintiff retained ownership of all trade secrets and Defendant agreed not to disclose any “confidential information” without Plaintiff's prior written approval.¹⁶ Moreover, during the time period of the Agreement, Defendant was not allowed to market, promote, or sell similar or competitive products within the Territory.¹⁷

B. The Amendment to the Agreement and the Disputed Facts

Plaintiff became dissatisfied with Defendant's performance and sought an amendment to the Agreement to remove a number of customer accounts from Defendant's purview.¹⁸ Hal Thrasher, Plaintiff's Director of Sales for North and South America,¹⁹ notified Martin Georgia, the President and co-owner of Defendant,²⁰ of this decision and promised to send him a proposed amendment to the Agreement for his review.²¹ Thrasher and Georgia did not discuss any further details of the amendment.²² Thrasher e-mailed Georgia an electronic document that was a draft letter amending the Agreement.²³ Georgia inserted language into the document that removed the non-competition provision ²⁴ and sent at least one signed version back to Thrasher (“Amendment”).²⁵ Georgia expected Plaintiff and its legal staff to read the two-page document and did not explicitly inform Plaintiff of the insertion.²⁶ Plaintiff counter-signed without knowledge that Georgia had made the changes and in reliance on the instructions that Plaintiff provided to Defendant.²⁷

The Parties dispute the exact instructions provided by Plaintiff when Plaintiff sent the electronic document, and whether Defendant complied with those instructions. Plaintiff claims that Thrasher “advised” Georgia that if Georgia had any “proposed edits,” then he should “mark up the document” and send it back “electronically” so that Plaintiff could approve or reject the proposed changes.²⁸ If Georgia had no changes, he was “advised” to send two signed originals of the letter to Thrasher for Plaintiff to counter-sign.²⁹ Defendant, however, claims that it did as instructed. That is, Georgia inserted language into the electronic version of the proposed amendment removing the non-competition provision and mailed a signed version to Thrasher.³⁰ Neither Party has produced the original e-mail correspondence between Thrasher and Georgia.

C. Termination of the Agreement

Plaintiff, through the Amendment, re-assigned three major accounts from Defendant's responsibility to a competitor of Defendant's.³¹ In January 2010, Defendant notified Plaintiff that it intended to terminate the Agreement, effective March 11, 2010.³² Thrasher notified Georgia of Defendant's non-competition obligations in the Agreement. In response, Georgia advised Thrasher to look at the Amendment.³³ This was the first time that Thrasher became aware of the phrase in the Amendment that had removed Defendant's non-competition obligations.³⁴

Plaintiff has now been informed by customers that Defendant has arranged to sell a competitor's products that are similar to and competitive with Plaintiff's product line.³⁵ At least one customer has notified Plaintiff that he was going to stay with the existing distributor (that is, Defendant) because Defendant told that customer that Plaintiff “fired” Defendant.³⁶

Plaintiff allegedly wrote to Defendant to remind it of its obligations under the Agreement, which include its non-competition obligations.³⁷ On February 9, 2010, Defendant allegedly notified Plaintiff that it believed that it had no ongoing non-competition obligation and that enforceability of the exclusion of section 12(f) was not affected by the fact that Defendant had not provided Plaintiff notice of the change to that section.³⁸

III. Discussion

Despite the disagreement with regard to the facts, the Parties' competing versions of events are not in sharp dispute such that the “propriety of injunctive relief hinges on determinations of credibility.” ³⁹ Given the need to balance speed and practicality against accuracy and fairness, along with the First Circuit's reminder that “an evidentiary hearing is not an indispensable requirement when a court allows or refuses a preliminary injunction” under Federal Rule of Civil Procedure 65,⁴⁰ this court can proceed to rule considering the facts presented.⁴¹

As the Supreme Court has recently instructed, a “plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” ⁴² In general, injunctive relief is “to be used sparingly, and only in a clear and plain case.” ⁴³ The burden is on the moving party to establish that consideration of these factors supports the issuance of a preliminary injunction.⁴⁴

Here, all four factors weigh in favor of denying the request for a preliminary injunction.

A. Success on the Merits

The First Circuit has instructed that the “sine qua non of [the] four-part inquiry is likelihood of success on the merits: if the moving party cannot demonstrate that he is likely to succeed in his quest, the remaining factors become matters of idle curiosity.” ⁴⁵ In this court's analysis, therefore, likelihood of success is the primary obstacle that Plaintiff must surmount.⁴⁶

Plaintiff contends that it can establish likelihood of success on the merits in proving that Defendant's sale of competitive products breaches the non-competition provision of the Agreement. Plaintiff alleges that the only argument available to Defendant is that the Amendment should be enforced to include the purported deletion of the non-competition obligation in the Agreement. Plaintiff replies to this argument that the language deleting the non-competition obligation is unenforceable because it was placed there deceitfully and does not express the intentions of the Parties.⁴⁷ Moreover, enforcing the non-competition provision is an appropriate remedy for Defendant's deceit.

Plaintiff's arguments fail for the following reasons.

1. Is the Amendment Unenforceable?

Plaintiff contends that Defendant's Amendment to the Agreement is unenforceable for two reasons. First, Defendant's Amendment was an act of fraud and deceit.⁴⁸ Second, Defendant's act was a breach of contract. ⁴⁹ Both of Plaintiff's contentions fail, for the reasons explained below.

a. Fraud and Deceit

Plaintiff contends that Defendant committed fraud and deceit. Specifically, Plaintiff contends that the Parties agreed to amend the...