Opinion
Civil No. 01-1108-FR
September 27, 2001
O P I N I O N
Peter E. Heuser, Owen W. Dukelow, Kolisch, Hartwell, Dickinson, McCormack Heuser, P.C., Portland, OR, Eric A. Bartsch, Lindquist Vennum, P.L.L.P., Minneapolis, MN, Attorneys for Plaintiff.
Michael M. Ratoza, Laura Caldera Taylor, Ratoza Long, P.C., Portland, OR, Bryan P. Coluccio, Short Cressman Burgess, P.L.L.C., Seattle, WA, Attorneys for Defendant.
The matter before the court is Sunrich Food Group, Inc.'s motion for preliminary injunction (#6).
BACKGROUND
On July 20, 2001, the plaintiff, Sunrich Food Group, Inc. ("Sunrich"), filed the complaint in this action entitled "Unfair Competition ( 28 U.S.C. § 1332)" against the defendant, Pacific Foods of Oregon, Inc. ("Pacific Foods"), setting forth the following claims for relief: 1) COUNT I — Breach of Contract; 2) COUNT II — Breach of Contract; 3) COUNT III — Tortious Interference with Contract; 4) COUNT IV — Tortious Interference with Prospective Business Advantage; 5) COUNT V — Breach of the Implied Covenant of Good Faith and Fair Dealing; 6) COUNT VI — Breach of Fiduciary Duties and the Duty of Loyalty; and 7) COUNT VII — Misappropriation of Trade Secrets.
On July 30, 2001, plaintiff Sunrich filed a motion for a preliminary injunction seeking to enjoin defendant Pacific Foods from 1) interfering with the Co-Brand Agreement between Sunrich and Trader Joe's dated June 5, 1996; 2) converting and misappropriating Sunrich's trade secrets and confidential information, including information relating to Sunrich's business strategies; and 3) competing in any way with Sunrich for TRADER JOE'S-branded soy and rice beverage business or from otherwise interfering with the arrangement of vendor exclusivity described in the Co-Brand Agreement.
On September 7, 2001, Sunrich filed its Reply Memorandum of Law in Support of Motion for Preliminary Injunction requesting the court to "grant Sunrich's motion for a preliminary injunction and enjoin Pacific from (1) manufacturing and selling a half-gallon TRADER JOE'S branded soy based and rice based beverage for the shelf stable aseptic product category and (2) from competing with Sunrich for Trader Joe's aseptic shelf stable container soy and rice based beverage orders." Id. at 30.
FACTS
In approximately 1993, Pacific Foods was contacted by Naomi Williams, a food consultant, on behalf of Jenkins Gournoe, Inc., doing business as First Light Foods, concerning the manufacture and packaging of a soy beverage under the brand name "SOY-UM." Neither Williams nor First Light Foods had a formula or a recipe for the product. At the time Pacific Foods was contacted by Williams and First Light Foods, Pacific Foods was developing and selling its own line of PACIFIC brand non-dairy beverages, including PACIFIC soy beverages. Pacific Foods was also packaging and manufacturing soy and rice beverages under private labels for other customers.
Pacific Foods agreed to and developed a product formulation for a soy beverage that was packaged for First Light Foods under the label SOY-UM. All rights and ownership of this formula remained the exclusive property of Pacific Foods.
In approximately 1994, the Trader Joe's grocery store chain began selling the SOY-UM labeled product in its stores. SOY-UM was packaged and manufactured by Pacific Foods for First Light Foods as a private label, using formulations owned exclusively by Pacific Foods. After receiving the orders from First Light Foods, Pacific Foods manufactured the SOY-UM product and shipped the product from the Pacific Foods warehouse directly to Trader Joe's. Prior to and throughout this time, Pacific Foods continued to manufacture its own soy beverage products under the PACIFIC label as well as other private label soy beverages and to sell these products to many stores including Trader Joe's.
In 1995, Williams and First Light Foods requested that Pacific Foods manufacture a rice beverage under the brand name "Rice Magic." At that time, Pacific Foods was manufacturing its own rice beverage under the PACIFIC brand and was manufacturing other private label rice beverages for other customers. These products, including the PACIFIC brand, were being sold in retail stores including Trader Joe's. Neither Williams nor First Light Foods had a product formula or a recipe for a rice beverage. Pacific Foods, at its own expense, developed a rice-based beverage product for Rice Magic. Pacific Foods retained full ownership of the proprietary formula and manufactured Rice Magic for First Light Foods on a purchase order basis. Rice Magic sold poorly.
Jon Alberon, employed by Trader Joe's as a senior buyer, worked closely with Naomi Williams and First Light Foods over the placement of SOY-UM and Rice Magic at Trader Joe's. Alberon was aware that SOY-UM and Rice Magic was manufactured by Pacific Foods. Alberon and Williams discussed a co-brand agreement between First Light Foods and Trader Joe's. Alberon explains in his declaration:
4. In mid-1996, I discussed with Ms. Williams a co-brand arrangement with First Light Foods involving use of the Soy-Um name. A "co-brand" is where label names owned by different parties are used on the same product. Ms. Williams and I also brainstormed about changing the name "Rice Magic" to "Rice-Um." The co-brand arrangement worked out with Ms. Williams and First Light Foods allowed Trader Joe's to use the names Soy-Um and Rice-Um on non-dairy beverages. So long as Trader Joe's used the Soy-Um and Rice-Um names, it would use First Light Foods as the vendor source for the products packaged with those names. First Light Foods was concerned Trader Joe's would package Soy-Um or Rice-Um products with other vendors or manufacturers. To address this concern, Naomi and I worked out the June 5, 1996 letter attached as Exhibit 1.
Declaration of Jon Alberon, p. 3.
On June 5, 1996, First Light Foods entered into an agreement with Trader Joe's which provided that Trader Joe's would sell SOY-UM and RICE-UM labeled beverages exclusively in its stores under the TRADER JOE'S trademark. The letter agreement provided as follows:
The following provides in principle the Soy-Um and Rice-Um co-brand agreement between First Light Foods and Trader Joes. This agreement provides exclusive marketing rights to Trader Joes of the registered trademarks Soy-Um and Rice-Um for current products and future line extensions. These trademarks are owned by Jenkins Gournoe, Inc. DBA First Light Foods.
First Light Foods will license the rights to market the Soy-Um and Rice-Um brands under the Trader Joes label. Additionally, Trader Joes would guarantee continued use of the Soy-Um and Rice-Um brands as long as this license agreement remains in effect.
First Light Foods will continue to be the exclusive vendor source of the products under the licensed brands. This includes sourcing, packaging, and delivery of these licensed brands and all future line extensions.
The volume, pricing, and positioning objectives would be mutually agreed on by Trader Joes and First Light Foods on a regular basis. An objective of this agreement is to maximize growth opportunities within the respective categories the brands will be utilized.
Packaging and finished goods inventory will be maintained by First Light Foods on a consistent basis. Continued review and agreement on timeliness will be maintained. Incremental costs incurred in new creative, i.e., art, plates, outside costs, will be shared on a project by project basis on a budget which will be mutually agreed on.
October 7, 1996 is the projected introduction of the Trader Joes Soy-Um and Rice-Um categories.
The term of this agreement will remain in effect as long as the license arrangement is maintained. Upon termination Trader Joes will utilize existing "Trader Joes" labeled inventories. These inventories will be maintained on a six month supply basis unless otherwise agreed upon.
Exhibit A to Verified Complaint.
Alberon further explains in his declaration:
5. The June 5, 1996 letter only provides, and was intended to only provide, that so long as Trader Joe's used the name Soy-Um or Rice-Um, it will use First Light Foods as a supply source of products bearing those names. Trader Joe's reserved the right to terminate use of the Soy-Um or Rice-Um names at any time in its sole discretion. The co-brand letter did not give First Light Foods any exclusive right to package any private label soy or rice beverage sold under the Trader Joe's trademark, or any other soy or rice beverages sold in Trader Joe's. The letter does not provide, and it was not intended to provide, that Trader Joe's had to buy from First Light Foods all non-dairy beverages sold in its stores, including under Trader Joe's private label.
6. Based on my six years managing its shelf stable non-dairy beverage business, Trader Joe's never entered into any agreement granting a supplier or manufacturer the exclusive right to sell non-dairy beverages to Trader Joe's, including sales under the Trader Joe's private label.
Declaration of Jon Alberon, pp. 3-4.
After the June 5, 1996 letter was signed, Pacific Foods continued to manufacture SOY-UM and RICE-UM for First Light Foods under the TRADER JOE'S trademark using Pacific Foods' proprietary formulas which were sold exclusively in Trader Joe's stores.
On April 28, 1998, First Light Foods and Pacific Foods signed a "Packing Agreement" setting out the terms for the continued manufacture and packaging of SOY-UM and RICE-UM by Pacific Foods under the agreement between First Light Foods and Trader Joe's. This Packing Agreement set out the following "Recitals:"
A. Pacific owns and operates facilities for developing, manufacturing and packing a variety of drinks, beverages, and other food products. Pacific owns a variety of proprietary formulas and other trade secrets used in its business, and also manufactures products under co-packing arrangements utilizing proprietary formulas owned by third parties. Pacific is the exclusive owner of proprietary formulas for rice base and soy base beverages which have been and will be sold in Trader Joe's retail stores under the brand names "Soy-Um," "Rice-Um," "Trader Joe's Soy-Um," and "Trader Joe's Rice-Um" and other similar or related brand names or derivatives (hereafter "the Trademark"). FLF is the sole and exclusive owner of these brand names.
B. FLF requests that Pacific develop, manufacture and package rice base and soy base beverages ("the Product", as further defined below) for sale under the Trademark or other similar brand name derivatives, including those beverages for sale exclusively in Trader Joe's retail outlets, on the terms and conditions set forth below.
C. FLF has entered into an agreement with Trader Joe's regarding the exclusive sale and supply of Trader Joe's requirements for beverage products sold under the Trademark brand names. That agreement is attached as Exhibit A, and Pacific has expressly relied upon that agreement in entering into this Agreement. It is the intent of FLF that Pacific provide all of the requirements for products to Trader Joe's under Exhibit A [the June 5, 1996 letter].
Exhibit B to Verified Complaint, p. 1.
The "Packing Agreement" sets out the following "TERMS," in part:
2. Purchase of All Requirements of Product. Subject to the terms of this Agreement, FLF shall purchase and accept exclusively from Pacific all of FLF annual requirements for the Product. FLF's annual requirements shall include all of Trader Joe's orders for the Product to FLF or any of its subsidiaries or related companies. During the term of this Agreement, FLF shall not purchase or obtain any Products from another source.
3. Commencement Date and Term of Agreement. This Agreement shall commence on the date above written, and continue for an initial term of five (5) years. This Agreement shall automatically renew for additional periods of two (2) years, unless either party provides written notice to the other party of its intent not to renew this Agreement no later than 180 days before the expiration of the then current term. Otherwise, this Agreement may not be terminated except as provided in Paragraph 18.
4. Payment Terms and Administration.
a. Administration of the production, orders, sales, and invoicing of the Product will be handled by Pacific. . . .
. . . .
5. Pricing. The sales price for the Product and Pacific's price are set forth in Exhibit B. Prices shall be F.O.B. at Pacific's facilities in Tualatin, Oregon. The parties agree to negotiate price and production cost adjustments as appropriate from time to time based on any market changes in pricing and availability of raw materials. Contract packing charges will be reviewed annually and adjusted, if necessary, by mutual agreement of the parties.
. . . .
9. Ownership of Product Formula. Unless otherwise provided by written agreement of the parties, the Formula is and shall remain the exclusive property of Pacific. Any changes, modifications or derivations of the Formula shall remain the exclusive property of Pacific.
. . . .
16. Relationship of Parties. This Agreement does not constitute either party as the agent or legal representative of the other for any purpose whatsoever. This Agreement shall not create a partnership, joint venture, joint enterprise, or similar relationship between the parties. Pacific's relationship with FLF under this Agreement is that of an independent contractor and neither party shall represent to any person or party that it has any relationship with the other party other than that of independent contractor. . . .
. . . .
18. Termination of Agreement. In the event either party materially breaches this Agreement, the non-breaching party may notify the breaching party that it intends to terminate this Agreement. Such notice must be provided within a reasonable period of time after the occurrence of a breach, and must be made in writing. The notice shall detail the acts or omission of the breaching party giving rise to the claim of breach. The breaching party shall thereafter have thirty (30) days after the receipt of notice to cure the breach. Failure to cure the breach within this thirty day period will allow the non-breaching party the right to thereafter immediately terminate this Agreement. Pacific may terminate this Agreement, without cause, upon 90 days' written notice to FLF.
Id., pp. 2-6.
In 1998, Kim Jenkins, former president of Jenkins Gournoe, Inc., inquired during a meeting with Pacific Foods as to when Pacific Foods would be able to begin manufacturing a half-gallon SOY-UM product for First Light Foods pursuant to the Packing Agreement. Jenkins states in her declaration that "Pacific responded that the production machine used to fill half-gallon aseptic shelf-stable containers, known as a "CombiBlock," was expensive and that Pacific was reluctant to invest in the "CombiBlock" machine unless anticipated sales of the new half-gallon SOY-UM product merited the investment." Second Declaration of Kim W. Jenkins, pp. 10-11. Notes on letterhead from Preferred Marketing Services, Inc. entitled "PACIFIC FOODS MEETING 11/5/98 — FIRST LIGHT FOODS SUMMARY" state, in relevant part:
64 OZ. SIZE PACKAGING
A. Currently Westbrae supplies 6 SKU's of 64 oz. size. Regular Soy, Soy Plus and Soy Light 8 pack case volume is $50,000 a week for all 6 SKU's. Bacteria and consistency problems. Wanted to know if and when Pacific could get into this size packaging. Minimum of a year away. Need to review the time line and see if it pays to do anything quicker.
Id., Exhibit D, p. 2.
Pacific Foods continued to sell its own PACIFIC brand soy, rice and other grain-based products to Trader Joe's during the time that Pacific Foods manufactured the SOY-UM and RICE-UM under the TRADER JOE'S trademark. In 1999, Trader Joe's asked Pacific Foods and First Light Foods to convert PACIFIC fat-free soy and rice beverages to the SOY-UM and RICE-UM labels. Pacific Foods and First Light Foods agreed. These converted products were the PACIFIC fat-free soy product line packaged as TRADER JOE'S SOY-UM fat-free and the PACIFIC fat-free rice product line packaged as TRADER JOE'S RICE-UM fat-free. In 1999, two Pacific Foods formulations for strawberry and coffee soy beverages were packaged in TRADER JOE'S SOY-UM packaging. First Light Foods approved these new products, designed the packaging under the direction of Trader Joe's, and collected a fee for the sales. It appears from the record that a dispute arose over payments for these converted products.
In approximately 1999, Pacific Foods initiated discussions with First Light Foods to adjust the pricing of SOY-UM and RICE-UM to Trader Joe's. Under Paragraph 5 of the Packing Agreement, pricing changes require mutual agreement of the parties. Those discussions did not resolve the issue.
In February of 2001, Sunrich acquired Jenkins Gournoe, Inc., doing business as First Light Foods. Sunrich is a direct competitor of Pacific Foods. Before it acquired First Light Foods, Sunrich did no business with Trader Joe's.
During the period from February of 2001 until this action was filed on July 20, 2001, Sunrich and Pacific Foods discussed their respective rights and responsibilities to each other under the Packing Agreement. Correspondence was exchanged.
In approximately June of 2001, Jenkins met with David Henry, Trader Joe's buyer, to discuss the SOY-UM and RICE-UM products at Trader Joe's. At that time, Henry revealed to Jenkins that Trader Joe's was going to introduce a half-gallon soy milk product, packaged under the TRADER JOE'S trademark, to replace the Westbrae product. Henry advised Jenkins that the new half-gallon product was going to be manufactured by Pacific Foods and would not involve the SOY-UM and RICE-UM marks or Sunrich. Henry states in his declaration:
10. Early this year, Trader Joe's, because of external price com-petition, began having conversations with all of its soy beverage suppliers, both domestically and internationally, to explore lower price alternatives. Through collaborative efforts, Trader Joe's decided to address the competition issue on a cost per ounce basis by offering a half gallon size of a new soy beverage it will introduce in its stores. This product will not carry the Soy-Um or Rice-Um names. In addition, Trader Joe's has carried, and continues to carry, a half gallon soy beverage packaged by Westbrae. In my opinion, there is no agreement that requires Trader Joe's to purchase half gallon non-dairy beverages from First Light Foods, Sunrich Food Group, Pacific Foods of Oregon, or any other vendor. Nor do I know of any agreement that requires Trader Joe's to use any particular company as a vendor source for the half-gallon product.
Declaration of David Henry, p. 6 (attached to Declaration of Michael M. Ratoza).
Jonathan Gehrs, the chief financial officer for Pacific Foods, explained in his declaration that Pacific Foods was contacted by Trader Joe's in early 2001 and asked to provide Trader Joe's with a price quote for a new soy beverage to be packaged in a half-gallon container under the TRADER JOE'S trademark, and that Pacific Foods, at its sole expense, performed research and development for a new formulation for this Trader Joe's soy beverage. This new product will not be sold in Trader Joe's stores until sometime after October 1, 2001. Sunrich moves this court to enjoin Pacific Foods from manufacturing and selling this product to Trader Joe's.
On July 20, 2001, Sunrich gave notice to Pacific Foods of the cancellation of the 1998 Packing Agreement for "Pacific Food's material breach of the terms of that agreement including, inter alia, its breach of the implied covenant of good faith and fair dealing and its refusal to negotiate a new pricing structure according to the terms of the agreement." Exhibit 4 to Declaration of Jonathan Gehrs, p. 1. On that same date, Sunrich filed the complaint in this action.
On August 20, 2001, Trader Joe's wrote to Sunrich, in part, as follows:
I have been informed by my client, Trader Joe's Co., Inc., ("Trader Joe's") that your client, Sunrich Food Group ("Sunrich"), recently gave notice to Trader Joe's that, effective today, the Soy-Um and Rice-Um brand shelf-stable beverage would be distributed and packed by Sunrich. I was informed that the reason for the change is that Sunrich would no longer be using Pacific Foods of Oregon ("Pacific Foods") as the manufacturer and packer of the Soy-Um and Rice-Um beverages.
It is our understanding that the formulas sold as Soy-Um and Rice-Um since their introduction are owned by Pacific Foods. Therefore, it is our further understanding that the products that will now be in the Soy-Um and Rice-Um containers will be different formulas than what have been contained in the packages since 1996. . . . Specifically, Trader Joe's entered into the June 5, 1996 licensing agreement with Sunrich's successor, First Light Foods, based on a product that had been successfully tested and approved by Trader Joe's tasting panel. Trader Joe's cannot continue to use the same packaging and the same name, but substitute an unknown product.
Accordingly, consistent with Trader Joe's normal approval process, Sunrich should submit its newly formulated Soy-Um and Rice-Um beverages to Mr. Henry, who will supervise their submission to the Trader Joe's testing panel. If the new formulas are accepted, Trader Joe's will resume placing orders for Soy-Um and/or Rice-Um products.
Declaration of Eric A. Bartsch (attached as Exhibit A to Plaintiff's Memorandum of Law in Support of Motion for Temporary Restraining Order).
CONTENTIONS OF SUNRICH
Sunrich moves this court to enjoin Pacific Foods from manufacturing a half-gallon soy milk product for Trader Joe's under the TRADER JOE'S trademark on the grounds that Pacific Foods misappropriated this commercial advantage rightfully anticipated by Sunrich. Sunrich contends that Pacific Foods breached its fiduciary duty of loyalty owed to Sunrich and misappropriated this prospective business opportunity rightfully belonging to Sunrich.
Sunrich contends that "[t]he Co-Brand Agreement made Sunrich the exclusive vendor of all soy and rice-based beverages sold in Trader Joe's stores under the "TRADER JOE'S" trademark." Plaintiff's Memorandum of Law in Support of Motion for Preliminary Injunction, p. 6. Sunrich contends that it is the exclusive distributor for TRADER JOE'S branded soy and rice-based beverages, and that Pacific Foods has interfered with this exclusive, ongoing and legally protected relationship by agreeing to manufacture and sell half-gallon TRADER JOE'S branded soy-based and rice-based beverages to Trader Joe's for Pacific Food's account.
Sunrich contends that this interference by Pacific Foods with the Co-Brand Agreement and Sunrich's prospective business advantage was wrongful because Pacific Foods breached the duty of loyalty and trust that Pacific Foods owed to First Light Foods, now Sunrich, based upon the Packing Agreement. Sunrich contends that Pacific Foods owed Sunrich a duty under the Packing Agreement to act on behalf of Sunrich. Sunrich contends that the Packing Agreement created an extraordinary or fiduciary relationship between First Light Foods, now Sunrich, and Pacific Foods because Pacific Foods bargained for and obtained duties and powers not included in a typical toll packing agreement, including exclusive control over Sunrich's cash flows and the manufacture of SOY-UM and RICE-UM.
Sunrich contends that Pacific Foods secretly worked to misappropriate and exploit Sunrich's business relationship with Trader Joe's. Sunrich contends that Pacific Foods acquired information about the opportunity for a new half-gallon product at Trader Joe's by virtue of its role as Sunrich's exclusive SOY-UM and RICE-UM toll packer and began a predatory course of conquest intending to convert the confidential information it acquired from Sunrich into a commercial and competitive advantage. Sunrich asks this court to use its equitable powers to enforce a duty not to compete implied from a fiduciary relationship resulting from the Packing Agreement between Sunrich and Pacific Foods.
CONTENTIONS OF PACIFIC FOODS
Pacific Foods contends that Sunrich cannot succeed on its tortious interference claims because there has been no interference with any contract or business expectancy. Pacific Foods explains that Sunrich has no contract right or business expectancy to exclusively pack all soy and rice-based beverages sold under the TRADER JOE'S trademark. Specifically, Pacific Foods contends that Sunrich had no contract right or business expectancy to manufacture a half-gallon soy milk product for Trader Joe's under the TRADER JOE'S trademark. Pacific Foods contends that the Co-Brand Agreement dated June 5, 1996 does not obligate Trader Joe's to purchase any or all of its soy or rice beverages packaged under the TRADER JOE'S trademark exclusively from Sunrich.
Pacific Foods contends that it does not owe Sunrich a fiduciary duty and, in any event, has not taken any actions which would constitute any violation of any fiduciary duty. Pacific Foods contends that the relationship between Pacific Foods and First Light Foods, now Sunrich, has always been solely one of independent contractor. Pacific Foods contends that the Packing Agreement specifically provides that the relationship of the parties is one of independent contractor, and that Pacific Foods never exercised any independent judgment on behalf of First Light Foods or Sunrich which would create a fiduciary relationship or imply a duty not to compete.
Pacific Foods contends that it has maintained the right to compete with Sunrich in the non-dairy beverage market, including sales to Trader Joe's. Pacific Foods contends that it has continued to sell its own soy and rice beverages to Trader Joe's during the entire relationship with First Light Foods. Pacific Foods contends that First Light Foods never asked, and Pacific Foods never agreed, not to compete with Soy-Um and Rice-Um products through sale of either PACIFIC brands or through the sale of other private label products manufactured by Pacific Foods for other customers. Pacific Foods contends that there is nothing in the Packing Agreement between Pacific Foods and First Light Foods that prevents Pacific Foods from competing with First Light Foods or Sunrich in the marketplace, including sales to Trader Joe's. Pacific Foods contends that the Packing Agreement does not contain a covenant not to compete or any other non-competition provision that prevents Pacific Foods from doing any business with Trader Joe's, or for that matter any other retailer.
APPLICABLE STANDARD
In order to obtain a preliminary injunction pursuant to Rule 65(a) of the Federal Rules of Civil Procedure, Sunrich must show either 1) a combination of probable success on the merits and the possibility of irreparable injury, or 2) the existence of serious questions going to the merits and that the balance of hardships tips sharply in Sunrich's favor. See FDIC v. Garner, 125 F.3d 1272, 1277 (9th Cir. 1997).
These are not separate tests, but rather two ends of a "sliding scale in which the required degree of irreparable harm increases as the probability of success decreases." Briggs v. Sullivan, 886 F.2d 1132, 1143 (9th Cir. 1989) (quoting United States v. Odessa Union Warehouse Co-op, 833 F.2d 172, 174 (9th Cir. 1987)).
ANALYSIS
1. Probability of Success on the Merits
Plaintiff Sunrich contends that defendant Pacific Foods has breached its duty of loyalty, leveraged confidential information, and misappropriated Sunrich's prospective business opportunity to manufacture a half-gallon version of Soy-Um and Rice-Um.
In Allen v. Hall, 328 Or. 276, 281 (1999), the Oregon Supreme Court explained
the elements of the tort of intentional interference with economic relations as follows: (1) the existence of a professional or business relationship (which could include, e.g., a contract or a prospective economic advantage); (2) intentional interference with that relationship or advantage; (3) by a third party; (4) accomplished through improper means or for an improper purpose; (5) a causal effect between the interference and the harm to the relationship or prospective advantage; and (6) damages.
"The similar tort of tortious interference with prospective business advantage does not depend on the existence of a contract, but arises when a defendant induces a third person not to enter into or not to continue a business relationship with the plaintiff." Dial Temporary Help Serv., Inc. v. Shrock, 946 F. Supp. 847, 855 (D.Or. 1996) (citing Thompson v. Telephone and Data Sys., 130 Or. App. 302, 313, n. 1 (1994).
In support of its claim that Pacific Foods wrongfully interfered with Sunrich's business opportunity to manufacture a half-gallon SOY-UM and RICE-UM under the TRADER JOE'S trademark, Sunrich submits the Second Declaration of Kim W. Jenkins, the former president of
Jenkins Gournoe, Inc., in relevant part, as follows:
18. . . . I had [a meeting] with Chuck Eggert and Trader Joe's on November 5, 1998, Naomi Williams, First Light Foods' soy milk broker, contemporaneously wrote:
V. 64 OZ. [Half Gallon] SIZE PACKAGING
A. Currently Westbrae supplies 6 SKU's of 64 oz. size. Regular Soy, Soy Plus and Soy Light 8 pack case volume is $50,000 a week for all 6 SKU's. Bacteria and consistency problems. Wanted to know if and when Pacific could get into this size packaging. Minimum of a year away. Need to review the time line and see if it pays to do anything quicker.
19. In 1998 Trader Joe's wanted to replace a half gallon Westbrae product that Trader Joe's sold with a new half-gallon SOY-UM product. SOY-UM was targeted to replace the Westbrae product because of product quality and consistency problems Trader Joe's had encountered with the Westbrae product. Because Pacific was FLF's exclusive toll packer for SOY-UM, I inquired, along with Jon Albers, Trader Joe's buyer, during my meeting with Pacific on November 5, 1998, when Pacific would be able to begin manufacturing a half-gallon SOY-UM product for First Light Foods pursuant to the Packing Agreement. Pacific responded that the production machine used to fill half-gallon aseptic shelf-stable containers, known as a "CombiBlock," was expensive and that Pacific was reluctant to invest in the "CombiBlock" machine unless anticipated sales of the new half-gallon SOY-UM product merited the investment.
20. After the 1998 meeting, I inquired of Chuck Eggert and Pat Carey, both from Pacific Foods, about the introduction of a half-gallon SOY-UM product at Trader Joe's. . . .
Id., pp. 10-11.
The contract between Trader Joe's and First Light Foods, now Sunrich, does not entitle Sunrich to manufacture a half-gallon version of Soy-Um and Rice-Um. Trader Joe's had no contractual obligation to place its trademark on half-gallon soy products labeled Soy-Um and Rice-Um. Sunrich relies upon evidence that Trader Joe's inquired of First Light Foods as early as 1998 whether First Light Foods could provide a half-gallon SOY-UM product. But the record also contains evidence from Trader Joe's buyer that in early 2001, Trader Joe's "began having conversations with all of its soy beverage suppliers, both domestically and internationally, to explore lower price alternatives [and] decided to . . . offer a half gallon size of a new soy beverage. . . ." Declaration of David Henry, p. 6. Pacific Foods' chief financial officer states that "[i]n early 2001, Pacific Foods was contacted by Trader Joe's and asked to provide a price quote for a new soy beverage to be packaged in a half-gallon container under the Trader Joe's trademark." Declaration of Jonathan Gehrs, p. 15. Sunrich has not demonstrated in the record before this court that it had a business expectation to manufacture a half-gallon SOY-UM product for Trader Joe's under the TRADER JOE'S trademark.
In its reply memorandum, Sunrich narrows its arguments to the claim that Pacific Foods breached a duty of loyalty owed to Sunrich as a fiduciary. Sunrich contends that Pacific Foods took advantage of a fiduciary relationship between Pacific Foods and Sunrich when it agreed with Trader Joe's to manufacture a half-gallon soy product under the TRADER JOE'S trademark. Pacific Foods contends that there was no fiduciary relationship between First Light Foods, now Sunrich, and Pacific Foods, and that the relationship between these parties has always been an arms-length, competitive business relationship.
Sunrich acknowledges that the ordinary toll packing relationships are generally arms-length transactions but contends that the Packing Agreement in this case created an extraordinary relationship described by the law as a "special" or "fiduciary" relationship and implied a duty not to compete for or self-deal in the subject matter of the packing relationship. Sunrich contends that Pacific Foods bargained for and obtained certain unique duties and powers, specifically exclusive control over Sunrich's cash flow and the manufacture of SOY-UM and RICE-UM, giving rise to the implied fiduciary obligations. Pacific Foods relies upon Section 16 of the Packing Agreement, as well as the course of conduct between the parties in support of its position that no fiduciary obligations ever existed between Pacific Foods and either First Light Foods or Sunrich.
The law implies a tort duty based upon a "special relationship" only when that relationship is of the type that, by its nature, allows one party to exercise judgment on the other party's behalf. Bennett v. Farmers Ins. Co., 332 Or. 138, 162 (2001). The court begins by examining all aspects of the relationship between the parties to determine whether one had a special responsibility toward the other. Id. If a contract exists, then the court will examine that contract to determine the type of relationship between the parties. Id. The focus is not on the subject matter of the relationship, such as one party's financial future; nor is it on whether one party, in fact, relinquished control to the other. The focus instead is on whether the nature of the parties' relationship itself allowed one party to exercise control in the first party's best interests. Id. at 161.
The explicit terms of the Packing Agreement between First Light Foods and Pacific Foods provides as follows:
16. Relationship of Parties. This Agreement does not constitute either party as the agent or legal representative of the other for any purpose whatsoever. This Agreement shall not create a partnership, joint venture, joint enterprise, or similar relationship between the parties. Pacific's relationship with FLF under this Agreement is that of an independent contractor and neither party shall represent to any person or party that it has any relationship with the other party other than that of independent contractor. . . .
Exhibit B to Verified Complaint, p. 6.
The Packing Agreement clearly defines the relationship between First Light Foods and Pacific Foods as one of independent contractor.
Sunrich relies upon Section 2 of the Packing Agreement which required First Light Foods to "purchase and accept exclusively from Pacific all of FLF's annual requirements for the Product" in support of its claim of a fiduciary relationship. Id. at 2. This court concludes that this exclusive source provision has little significance because Pacific Foods is the "exclusive owner of proprietary formulas for rice base and soy base beverages" which have been sold and will be sold under the contract. Id. at 1. It would not be possible for First Light Foods to purchase the product which is the subject of the Packing Agreement from another manufacturer because First Light Foods owned only the brand names and not the proprietary formulas for the product.
Section 5 of the Packing Agreement requires mutual agreement of the parties as to pricing decisions but does provide in Section 4a. that the "[a]dministration of the production, orders, sales and invoicing of the Product will be handled by Pacific." Id. at 2. The only evidence in the record is that the accounting procedures in the Packing Agreement reflect the agreement of the parties as to credit arrangements. Section 5 is not an agreement to allow Pacific Foods to manage the business affairs of First Light Foods. Nothing about the relationship defined in the Packing Agreement suggested that First Light Foods would relinquish control over its business affairs or that Pacific Foods would exercise independent judgment on behalf of First Light Foods. Based upon the record, this court concludes that the Packing Agreement was negotiated freely between the parties and created an arms-length business relationship. The Packing Agreement does not restrain Pacific Foods from competing with SOY-UM or RICE-UM.
The court finds that Sunrich has not demonstrated a probability of success on the merits of a claim for intentional interference with prospective business opportunity or breach of duty of fair dealing.
2. Irreparable Injury/Balance of Hardships
Sunrich contends that "[t]ortious ruination of an exclusive business advantage satisfies the irreparable injury inquiry for injunctive relief per se," citing to this court's opinion in Alexander Alexander Benefits Servs., Inc. v. Benefit Brokers Consultants, Inc., 756 F. Supp. 1408, 1411 (D.Or. 1991). Plaintiff's Memorandum of Law in Support of Motion for Preliminary Injunction, p. 10.
In the Alexander case, this court found that the plaintiff "A A has made a strong showing of the probability of its success on the merits and has demonstrated the possibility of irreparable injury," 756 F. Supp. at 1416, and did not make reference to any "per se" rule. In the case before this court, this court has concluded that Sunrich has not demonstrated a probability of success on the merits.
Sunrich further contends that an injunction is warranted because "a monetary award would be speculative because the amount of damages would be difficult or impossible to measure." Sunrich Food Group, Inc.'s Reply Memorandum of Law in Support of Motion for Preliminary Injunction, p. 15. This court finds that any damages Sunrich may be entitled to are recoverable as lost profits and can be accurately calculated based upon evidence of sales by Pacific Foods to Trader Joe's.
To the extent that any serious questions are raised by Sunrich on the merits, this court would conclude that the balance of hardships tips in favor of Pacific Foods in large part because Sunrich gave notice to Pacific Foods of the cancellation of the 1998 Packing Agreement several months ago, and legal remedies are available and will be adequate in the event that Sunrich prevails on the merits.
CONCLUSION
Sunrich has not shown either a probability of success on the merits and the possibility of irreparable injury or the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor. Sunrich Food Group, Inc.'s motion for preliminary injunction (#6) is denied.
O R D E R
IT IS HEREBY ORDERED that Sunrich Food Group, Inc.'s motion for preliminary injunction (#6) is DENIED.