Ryko Mfg. Co. v. Eden Services, s. 84-1378

• Decision Date: 12 April 1985
• Docket Number: 84-2603,Nos. 84-1378,s. 84-1378
• Parties: RYKO MANUFACTURING CO., Appellant, v. EDEN SERVICES, a Maryland Partnership, Fred J. Eden and J. Erik Eden, Appellees. RYKO MANUFACTURING CO., James A. Nelson and Julian L. Klein, Appellants, v. EDEN SERVICES, a Maryland Partnership, Fred J. Eden and J. Erik Eden, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 671

759 F.2d 671

RYKO MANUFACTURING CO., Appellant, v. EDEN SERVICES, a Maryland Partnership, Fred J. Eden and J.

Erik Eden, Appellees.

RYKO MANUFACTURING CO., James A. Nelson and Julian L. Klein, Appellants, v. EDEN SERVICES, a Maryland Partnership, Fred J. Eden and J.

Erik Eden, Appellees.

Nos. 84-1378, 84-2603.

United States Court of Appeals,

Eighth Circuit.

Submitted March 14, 1985.

Decided April 12, 1985.

Robert G. Albee, Des Moines, Iowa, for appellant.

David O. Stewart, Washington, D.C., for appellees.

Before McMILLIAN, Circuit Judge, HENLEY, Senior Circuit Judge, and FAGG, Circuit Judge.

McMILLIAN, Circuit Judge.

Ryko Manufacturing Co. (Ryko) appeals from an order entered in the United States District Court for the Southern District of Iowa granting preliminary injunctive relief. The district court order enjoined Ryko from terminating the distributorship contract with Eden Services (Eden), defined the exclusive territory of Eden to include northern Virginia and required Ryko to pay Eden 150% of the usual commission for all sales made in Eden's territory. For reversal Ryko argues that the district court abused its discretion in granting preliminary injunctive relief, citing Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109 (8th Cir.1981). For the reasons discussed below, we modify the preliminary injunction and affirm the preliminary injunction as modified.

Ryko, a manufacturer of car wash equipment, contracted with Eden for the exclusive distribution of Ryko car wash equipment in the Maryland and Washington, D.C., areas. Disputes arose as to sales by Eden in the northern Virginia area, the alleged promotion and sale by Eden of products of Ryko's competitors, and the sale by Eden of Eden's water reclaim system. Approximately 60% of Eden's business is attributable to the sale of Ryko products. An additional 35% of Eden's revenues is derived from the installation and service of Ryko products. Only 2% of Ryko's products is sold through Eden.

Ryko brought a declaratory judgment action in February 1983 to determine the rights and responsibilities of the parties under the exclusive distributorship contract. This complaint was later amended to allege breach of contract and an intentional interference with business relationships. Eden counterclaimed against Ryko and asserted violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sec. 1961 (1982), breach of contract, fraud, intentional interference with business relations, violation of federal antitrust laws, libel, and slander.

On December 28, 1983, Ryko gave notice of termination of the distributorship contract to Eden. This action was enjoined by the district court on February 17, 1984, and Eden was required to post a $20,000 bond. In May 1984 the court defined Eden's exclusive territory for purposes of the preliminary injunction as Maryland, Washington, D.C., and northern Virginia. The bond was reduced from $20,000 to $10,000. Ryko filed timely notices of appeal following the February 1984 and May 1984 orders.

In November 1984 the district court modified the preliminary injunction and required Ryko to pay Eden 150% of the usual commission on all sales made in Maryland, northern Virginia, and Washington, D.C. Ryko subsequently appealed this order. Ryko also moved for a stay or modification of the preliminary injunction pending appeal. This motion for stay was denied by the district court and by this court.

In Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d at 113, this court established the test for the issuance of a preliminary injunction. The following factors are to be considered by the court: (1) the threat of irreparable harm to the movant, (2) the balance between this harm and the injury that granting the injunction will inflict on other parties or litigants, (3) the probability that movant will succeed on the merits, and (4) the public interest.

Enjoining Ryko from terminating Eden's distributorship contract

Ryko argues that the district court abused its discretion in enjoining Ryko from terminating Eden's distributorship contract. Ryko further argues that Ryko will probably succeed on the breach of contract claim because the evidence presented to the district court indicated clearly that Eden had sold products of Ryko's competitors and therefore had violated the contract. Ryko introduced letters from Eden to customers concerning Biven-Winchester products. Ryko also argues that Eden's sale of Eden's water reclaim system violates the contract.

Eden argues that the letters from Eden to customers concerning Bivens-Winchester products were the result of Ryko's trickery and therefore Ryko may not complain of a breach of contract which Ryko induced. (Ryko had persons request information from Eden about non-Ryko products in order to secure written proof that Eden was selling non-Ryko products.) Eden states that Bivens-Winchester will testify that Eden did not promote or sell its products although some contract negotiations had begun. Lastly, Eden argues that any breach was not material and substantial so as to support a rescission of the contract.

Concerning the balancing of hardships, Ryko argues that the competition in the car wash equipment market is very keen and therefore Ryko could be...