Watkins Inc. v. Lewis, No. 02-3901.

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Writing for the Court: Ericksen
• Citation: 346 F.3d 841
• Parties: WATKINS INCORPORATED, Appellee, v. Lloyd M. LEWIS and Sandra G. Lewis, Appellants.
• Decision Date: 21 October 2003
• Docket Number: No. 02-3901.

346 F.3d 841 WATKINS INCORPORATED, Appellee,
v.
Lloyd M. LEWIS and Sandra G. Lewis, Appellants. No. 02-3901. United States Court of Appeals, Eighth Circuit. Submitted: June 13, 2003. Filed: October 21, 2003.

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Diane B. Bratvold, argued, Minneapolis, MN (Jamie L. Forman, on the brief), for appellant.

William Z. Pentelovitch, argued, Minneapolis, MN (Mary R. Vasaly and Jason A. Lien, on the brief), for appellee.

Before RILEY, HEANEY, Circuit Judges, and ERICKSEN,¹ District Judge.

ERICKSEN, District Judge.

Sandra and Lloyd Lewis sought a preliminary injunction after Watkins Incorporated ended the parties' long-standing business relationship. The district court² denied the injunction, finding that the Lewises had not met their burden on any of the four Dataphase factors, and this appeal followed. We affirm.

Watkins is a direct-selling organization that sells health care products, food items, lotions, and various household products. In 1982 the Lewises signed a Purchase Agreement with Watkins whereby they became self-employed dealers in merchandise sold by Watkins. The Agreement provided that it could be terminated at any time by giving written notice. After they

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signed the Agreement, the Lewises began selling Watkins products in the southeastern United States. Unlike most self-employed Watkins dealers, the Lewises targeted their sales efforts at small retail establishments as opposed to individual consumers.

Ten years later, in December 1992, Watkins changed its policy with respect to sales to retail establishments. It issued a "Location Selling Policy" that provided as follows:

Do not sell Watkins products at self-service retail locations. Watkins products may be sold from locations such as trade shows, fairs, and mall kiosks provided the location is operated by and the sale is transacted by a registered Watkins Marketing Representative/Director. Watkins products may not be displayed or sold in self-service retail locations. (Note: Display and sales may continue at all retail locations which were in operation and have been registered with the company prior to 12/15/92. The accounts and locations are not transferable.)

In 1997, the Lewises signed an "Agreement to Comply with All Watkins Policies and Procedures," in which they verified that they would "comply with and follow all of Watkins' policies and guidelines as set forth in the terms and conditions of the International Marketing Representative Agreement and Watkins Training/Reference Manual." To resolve a dispute regarding the Location Selling Policy, the parties entered into an agreement (Settlement Agreement) in 1998 to "clarify their independent contractor relationship with one another." The Lewises furnished to Watkins a list of retail establishments that were grandfathered-in under the Location Selling Policy. Watkins agreed that:

The Lewises and their daughter Brittany and any spouse of Brittany are entitled to continue to distribute [specified Watkins products] through such Business Locations under said Location Selling Policy until the businesses located on [the list] no longer operate at the Business Location specified [on the list] or until they die or until further agreement of the parties.

Watkins and the Lewises further agreed "to communicate with each other on a professional basis and ... to work with each other in a manner consistent with the Watkins' Rules of Conduct in order to increase their respective businesses."

Difficulties in the business relationship between the parties became evident in early 2002. A Watkins representative visited the Lewises, who perceived that the representative was not impressed with their sales abilities. Watkins was slow to respond to the Lewises' complaint that other Watkins associates were selling to retail establishments on the Lewises' list. Watkins discovered that the Lewises were selling to unauthorized retail store locations, and Watkins' customer service representatives received an increasing number of complaints about the Lewises. The complaints related to overcharges, failure to deliver paid-for product, and concerns about professionalism. In April 2002, a Watkins representative wrote to the Lewises, warning them about their various perceived failings and cautioning that "any future unprofessional behavior and violation of our policies and procedures will not be tolerated and may result in the cancellation of your Watkins contract." Matters did not improve through the summer. Watkins' Teleservices Manager continued to report complaints about overcharges and lack of delivery. In July, Watkins was notified of an impending $300,000 lawsuit arising out of the Lewises' dealings with a customer.

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On September 11, 2002, Watkins notified the Lewises that, effective immediately, their contract and membership with Watkins were terminated: "The basis for this termination is multiple and continuing breaches of the Purchase Agreement you signed, as well as multiple and continuing breaches of the Agreement you signed on December 12, 1998, and for continuing violation of our Rules of Conduct as stated in our Policies and Procedures Manual." A week later, Watkins sent a letter to store managers and owners informing them that the only Watkins representative authorized to sell or service stores in their area was FitzGibbon and Company. Watkins also sent letters to its associates and managers notifying them that Sandy and Mike Lewis were "no longer Watkins Independent Associates," and that they should contact Cecilia and Myron Smith in Clarksville, Georgia, for support.

Contemporaneous with its termination of the Lewises' distributorship, Watkins sued the Lewises in state court, alleging that they had breached two agreements. The Lewises removed the lawsuit to federal district court on September 25, 2002, and on October 2, 2002, they filed a counterclaim alleging that they, their daughter, and any spouse she might acquire had a lifetime contract to sell Watkins products. On October 3, 2002, they moved for a preliminary injunction. The order denying them injunctive relief was issued on October 11, 2002.

I. Discussion

In deciding a motion for a preliminary injunction, a district court balances four factors: (1) the likelihood of the movant's success on the merits; (2) the threat of irreparable harm to the movant in the absence of relief; (3) the balance...