Court Opinion

ID: 2965547
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:41:43.814893+00
Date Added: 2024-06-11T15:02:23.873647
License: Public Domain

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<pre>                 United States Court of Appeals <br>                     For the First Circuit <br> <br> <br> <br> <br>No. 98-1948 <br> <br>                  OCEAN SPRAY CRANBERRIES, INC., <br> <br>                      Plaintiff, Appellant, <br> <br>                                v. <br> <br>                          PEPSICO, INC., <br> <br>                       Defendant, Appellee. <br> <br> <br> <br>           APPEAL FROM THE UNITED STATES DISTRICT COURT <br> <br>                FOR THE DISTRICT OF MASSACHUSETTS <br> <br>            [Hon. Nancy Gertner, U.S. District Judge] <br> <br> <br> <br>                              Before <br> <br>                     Boudin, Circuit Judge, <br>                                 <br>Reavley, Senior Circuit Judge, <br> <br>and Lipez, Circuit Judge. <br> <br> <br> <br>     James C. Burling with whom Michelle D. Miller, Cynthia D. <br>Vreeland, Mark D. Selwyn and Hale and Dorr LLP were on brief for <br>appellant. <br>     Ronald S. Rolfe with whom Toni G. Wolfman, Michael A. Albert, <br>Foley, Hoag & Eliot LLP, David J. Stone, Illana B. Chill, Victor L. <br>Hou and Cravath, Swaine & Moore were on brief for appellee. <br> <br> <br> <br> <br>November 12, 1998 <br> <br> <br> <br>                                 <br>                                 <br> <br>  BOUDIN, Circuit Judge.  This is an appeal by Ocean Spray <br>Cranberries, Inc. ("Ocean Spray") from a district court order <br>denying Ocean Spray a preliminary injunction against PepsiCo, Inc. <br>("Pepsi").  The dispute between the two companies centers on their <br>distribution agreement, whose exclusivity clause has apparently <br>been breached by Pepsi.  Although the appeal is not without <br>substance, we sustain the district court's refusal to grant the <br>injunctive relief sought. <br>  Ocean Spray is an agricultural cooperative owned by about <br>950 cranberry and citrus growers.  It is a leading producer of <br>canned and bottled juices and juice-flavored beverages; its annual  <br>sales appear to be well over $1 billion.  Most of its revenue and <br>profits come from so-called "multiserve" juice products (containers <br>with more than 20 ounces), which are sold through brokers and <br>wholesalers. <br>  The issue in this case is Ocean Spray's sale of so-called <br>"single-serve" juice products (containers of 20 ounces or less).  <br>Starting in 1992, Pepsi became Ocean Spray's exclusive distributor <br>for single-serve juice products.  By 1997, Ocean Spray was deriving <br>about $125 million from the sale of such products through Pepsi's <br>company-owned bottlers.  It earned another $100 million or so by <br>sales through independent bottlers licensed by Pepsi to handle <br>Pepsi's own products, but the contracts between Ocean Spray and <br>these independent Pepsi bottlers are not at issue in this case. <br>  Pepsi's company-owned bottlers supply retailers with <br>Pepsi products in territories not served by the independent <br>licensed Pepsi bottlers.  When Pepsi became the exclusive <br>distributor for Ocean Spray, its company-owned bottlers ceased to <br>handle the juices of companies competing with Ocean Spray (such as <br>Welch's and Mott's).  Since 1992, Ocean Spray has enjoyed the use <br>of Pepsi's company-owned bottlers not only to distribute Ocean <br>Spray's single-serve products, but also for a range of related <br>services for those products, including promotion, the securing of <br>national contracts, purchase of shelf space, and installation of <br>coolers in grocery stores and restaurants.   <br>  The original 1992 agreement between Pepsi and Ocean Spray <br>was a long-term agreement but did not work smoothly.  It was <br>replaced in 1995 by a new, short-term agreement that Pepsi then <br>sought to terminate.  Shortly before the termination date, the <br>parties entered into the present agreement in March 1998; the <br>agreement provided for Pepsi to distribute through its company- <br>owned bottlers covered single-serve Ocean Spray juice products.  <br>The precise definition of a covered single-serve product is not in <br>dispute. <br>  The 1998 agreement included Pepsi's promise not only to <br>distribute the covered products but also to employ "reasonable best <br>efforts" to promote and sell the Ocean Spray products it <br>distributes.  It included exclusivity provisions shortly to be <br>described.  And since 1991, when the parties first entered into <br>negotiations, both have been bound by a separate contract to <br>protect each other's confidential information, from marketing and <br>distribution strategy to research and product formulae. <br>  The 1998 agreement is exclusive in both directions.  With <br>limited exceptions, Pepsi agreed that it would not distribute any <br>noncarbonated juice or juice-containing beverage that competed with <br>covered Ocean Spray products.  One limited exception permitted <br>Pepsi to distribute certain juice products that compete with Ocean <br>Spray covered products if made by Pepsi itself and not acquired <br>from a third party by a stock or asset purchase or otherwise.  <br>Conversely, Ocean Spray agreed that it would not distribute--other <br>than through Pepsi--its own covered products in the territories of <br>Pepsi bottlers.  <br>  The 1998 agreement provided for termination by either <br>party, but the earliest notice Pepsi could give is in 1999, and <br>even then the agreement was to continue until December 31, 2000.  <br>Nevertheless, in July 1998, four months after executing the new <br>distribution agreement with Ocean Spray, Pepsi announced that it <br>was purchasing Tropicana Products, Inc. ("Tropicana"), a leading <br>producer of juices and a major competitor of Ocean Spray, <br>especially in the supply of single-serve containers of orange <br>juice. <br>  On August 10, 1998, Ocean Spray filed a complaint and <br>motion for preliminary injunction in the district court.  Ocean <br>Spray charged that Pepsi was breaching the 1998 distribution <br>agreement, which barred it from distributing "directly or <br>indirectly"  products that competed with Ocean Spray's covered <br>single-serve products.  Specifically, Ocean Spray sought to enjoin <br>Tropicana "upon acquisition by Pepsi" from selling competing <br>single-serve juice products for the duration of the Pepsi-Ocean <br>Spray 1998 agreement.  Pepsi's acquisition of Tropicana was <br>completed on August 25, 1998.   <br>  Pepsi opposed Ocean Spray's motion in the district court, <br>and both sides filed extensive affidavits.  On August 20, 1998, the <br>district court entered an order denying Ocean Spray's motion for a <br>preliminary injunction, and on September 4, 1998, the district <br>court entered a memorandum and order reaffirming the denial and <br>setting forth reasons.  The primary basis for denying the <br>preliminary injunction was a finding of lack of irreparable injury <br>to Ocean Spray.   <br>  On this appeal, Ocean Spray argues that Pepsi has <br>breached its exclusivity obligation under the 1998 agreement, that <br>Pepsi will inevitably (if it has not already) violate the best <br>efforts and confidentiality agreements, and that damages would be <br>difficult, if not impossible, to calculate fully.  Pepsi insists <br>that its company-owned bottlers continue faithfully to distribute <br>and market Ocean Spray products and will not handle competing <br>Tropicana products during the remainder of the 1998 agreement's <br>term.  Pepsi also denies that it has breached or will breach the <br>confidentiality agreement.    <br>  Under federal law, a preliminary injunction depends upon <br>the familiar four-part test requiring the moving party to show <br>likelihood of success on the merits, irreparable injury, and a <br>favorable balance of the equities, including effects on the public <br>interest.  See Ross-Simons of Warwick, Inc. v. Baccarat, Inc., F.3d <br>12, 15 (1st Cir. 1996).  Massachusetts standards for a preliminary <br>injunction do not seem markedly different, see Packaging Indus. <br>Group, Inc. v. Cheney, 405 N.E.2d 106, 112 (Mass. 1980), and in any <br>event, neither side here argues that there is a pertinent state-law <br>difference that would govern a federal court in a diversity matter.  <br>Cf. A.W. Chesterton Co., Inc. v. Chesterton, 907 F. Supp. 19, 25 <br>n.9 (D. Mass. 1995).  The standard of review in this court is <br>deferential. <br>     In this case, Pepsi scarcely disputes that the <br>acquisition of Tropicana violated its exclusivity obligation under <br>the agreement as long as Tropicana continues to distribute covered <br>products.  Ocean Spray seizes on this (occasionally hedged) <br>concession to argue that the only remaining issue is irreparable <br>injury; it assumes that the equities are favorable to it (Pepsi's <br>breach being deliberate), and that the public interest is served by <br>forcing businesses to adhere to their contracts.  The situation is <br>slightly more complicated than Ocean Spray suggests.   <br>     The likelihood of success that is relevant here where an <br>injunction is sought is the likelihood that Ocean Spray would, <br>after  trial, be entitled to a permanent injunction to restrain <br>Tropicana  from distributing competing products during the duration <br>of the 1998 agreement.  One might suppose that such relief would <br>follow from Pepsi's concession that Pepsi's ownership of Tropicana <br>is itself a breach of the exclusivity clause.  Instead, as first- <br>year law students quickly learn, the enforcement of contracts by <br>injunction is the exception rather than the rule. <br>     Historically, equity would not supply relief where legal <br>remedies sufficed, and damages at law usually do provide remedies <br>for breach of contract. See Farnsworth, Contracts  12.4, at 852 <br>(2d ed. 1990).  A famous formulation is Justice Holmes's statement <br>that "[t]he duty to keep a contract in law means a prediction that <br>you must pay damages if you do not keep it,--and nothing else."  <br>Holmes, The Path of the Law, 10 Harv. L. Rev. 457, 462 (1897).  <br>Modern theorists have explained why it is often "efficient" to <br>limit the remedy to damages and exclude injunctive relief.  E.g., <br>Patton v. Mid-Continent Sys., Inc., 841 F.2d 742, 750 (7th Cir. <br>1988) (Posner, J.). <br>     Still, injunctive relief requiring performance of a <br>contract may ordinarily be granted (if other prerequisites are met) <br>where monetary damages will not afford complete relief.  A common <br>example is agreements involving the sale of real property; specific <br>performance is often granted because property is considered unique.  <br>See, e.g., Walgreen Co. v. Sara Creek Property  Co., 966 F.2d 273, <br>278 (7th Cir. 1992).  The same principle applies where harm caused <br>by a breach, although economic in nature, is impossible to measure <br>accurately.  See Ross-Simons, 102 F.3d at 19. <br>     Accurate measurement, of course, is a matter of degree.  <br>Courts have sometimes refused injunctions to enforce franchise or <br>similar contracts involving ongoing business relationships-- <br>situations in which it would ordinarily be difficult to prove with <br>perfect accuracy the revenues lost as a result of the breach.   <br>See, e.g., Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d <br>70, 72 (2d Cir. 1979); Foreign Motors, Inc. v. Audi of America, <br>Inc., 755 F. Supp. 30, 33 (D. Mass. 1991).  Thus, some measure of <br>uncertainty does not automatically avoid Holmes's precept. <br>     Yet in other cases, uncertainty has been deemed to <br>warrant injunctions.  For example, in K-Mart Corp. v. Oriental <br>Plaza, Inc., 875 F.2d 907 (1st Cir. 1989), this court upheld a <br>preliminary injunction for K-Mart where a shopping mall-landlord <br>threatened to construct new retail space in a parking lot in front <br>of the K-Mart, apparently contrary to the terms of the parties' 20- <br>year lease agreement.  We agreed that "the loss of revenues <br>resulting from considerations such as diminished visibility, <br>restricted access, less commodious parking, and the like are <br>sufficiently problematic as to defy precise dollar quantification."  <br>Id. at 915. <br>     In this case, Pepsi's acquisition of Tropicana alters its <br>incentives to promote Ocean Spray if--and this is a large "if"--one <br>disregards possible sanctions against Pepsi.  Without Tropicana, <br>Pepsi's incentives in pricing and promotion of Ocean Spray's <br>covered products are largely aligned with those of Ocean Spray, <br>assuming that the distribution contract was competently drafted.  <br>As one of Ocean Spray's experts points out in his affidavit, <br>Tropicana's acquisition inserts a conflicting incentive, namely, <br>that successful promotion of Ocean Spray can take sales away from <br>Tropicana, in which Pepsi now has an economic interest. <br>     Of course, the change in incentive is limited.  The <br>customer sales representatives who work for Pepsi's company-owned <br>bottlers apparently receive compensation based on a percentage of <br>sales.  Pepsi also has an incentive to keep content the retailers <br>to whom it supplies Pepsi, as well as Ocean Spray, products.  <br>Still, especially at higher levels of the Pepsi company, strategy <br>as to distribution, Pepsi's pricing of Ocean Spray products, its <br>promotion expenditures, and other decisions could be affected by <br>the prospect that Pepsi's long-term interests are now aligned with <br>Tropicana. <br>     Ocean Spray's affidavit also makes a plausible case that, <br>to the extent that Pepsi does slacken its efforts to promote Ocean <br>Spray's covered products during the remaining (probably brief) life <br>of the 1998 agreement, the impact could go beyond the loss of sales <br>and profits.  One affiant points to so-called "spillover" effects <br>by which diminished promotion of Ocean Spray's widely available <br>single-serve products could in turn diminish sales of its larger <br>container products; and consequences may endure beyond the <br>termination of the agreement, whether viewed as longer-term loss of <br>sales or impairment of  the value of Ocean Spray's trademark.  <br>Damages may be difficult to prove with complete accuracy. <br>     Nevertheless, there is another side to the story.  Pepsi <br>and Ocean Spray have a relationship stretching back to 1992; <br>although the contracts differed during this period, this history <br>provides some benchmark for making judgments as to Pepsi's future <br>efforts.  Prior sales levels and other prior conduct of Pepsi vis <br> vis Ocean Spray's products, may make it much easier for Ocean <br>Spray to detect Pepsi's failure to use its best efforts hereafter <br>to promote Ocean Spray's products.  Certainly difficulties in <br>detecting immediate lost sales and profits appear to be <br>considerably less than in calculating the amount of spillover or <br>long-term effects. <br>     If we assume that any slackening of effort can be <br>detected, Pepsi has counter-incentives to continue behaving as it <br>would if Tropicana had never been acquired.  While contract <br>violations do not normally give rise to punitive damages, a <br>deliberate breach of Pepsi's best efforts obligations could give <br>rise to multiple damages under Massachusetts's chapter 93A, a claim <br>that Ocean Spray has already asserted in its complaint.  And there <br>is nothing that would prevent Ocean Spray from renewing its request <br>for injunctive relief if it could detect and establish that Pepsi <br>was not using its best efforts on behalf of Ocean Spray. <br>     In this important respect, Ocean Spray's situation is <br>very different from that of the plaintiffs in K-Mart and Ross <br>Simons.  There, the defendants' proposed actions would have had <br>immediate adverse effect on the plaintiffs (construction of an <br>obstructing building in one case and the cut-off of supplies in the <br>other).  Here, Pepsi's company-owned bottler distribution channel <br>remains open to Ocean Spray, and the only question is whether Pepsi <br>will let its pricing and promotion behavior be influenced by the <br>Tropicana acquisition.  Although businesses act in their economic <br>best interests, those interests in this case include avoiding <br>multiple damages and the risk of devastating injunctive relief. <br>     The second consideration is duration.  Pepsi can give <br>notice of termination as early as January 1, 1999 (although it <br>would then continue distributing Ocean Spray until the end of the <br>year 2000).  Ocean Spray had to know that during that contractually <br>established transition period Pepsi might consider aligning its <br>fortunes with another supplier.  In fact, the 1998 agreement <br>provided for arbitration if there was a claim by Ocean Spray of <br>lost sales during this transition. <br>     This is in stark contrast to a case like K-Mart in which <br>the obligation being breached was a 20-year commitment.  See K- <br>Mart, 875 F.2d at 915-16.  Not only is the harm potentially much <br>greater as the period stretches out, but so also the difficulties <br>of calculating damages.  See id.  We do not say that there is some <br>basic dividing line between one year and 20, but only that this is <br>a further consideration that limits the significance of any claim <br>of irreparable damages. <br>     Finally, if Pepsi did wrongfully reduce its efforts on <br>behalf of Ocean Spray and that fact were proved, the jury would <br>then be entitled to very considerable latitude in estimating the <br>damages, both from direct and indirect effects.  It is well settled <br>that the jury is given a good deal of freedom in estimating damages <br>against a defendant who created the risk of uncertainty as to <br>damages by its own wrongdoing.  See Jay Edwards, Inc. v. New <br>England Toyota Distrib., Inc., 708 F.2d 814, 821 (1st Cir. 1983), <br>cert. denied, 104 S. Ct. 241 (1983); Computer Sys. Eng., Inc. v. <br>Qantel Corp., 740 F.2d 59, 67 (1st Cir. 1984) (Massachusetts law).  <br>And, if any up-side error is likely to be doubled or tripled under <br>chapter 93A, the risks for Pepsi are multiplied. <br>     One other consideration affecting equities although not <br>damages is the drastic relief sought by Ocean Spray.  Effectively, <br>Ocean Spray is asking that after the acquisition, Tropicana be <br>forbidden from continuing to use its own channels to distribute its <br>own single-serve juices at all in geographic areas in which Ocean <br>Spray distributes its competing products.  Tropicana is a leading <br>competitor, and the effect of so drastic a solution would be <br>greatly to benefit Ocean Spray by undercutting competition from <br>Tropicana that existed long before the acquisition was a twinkle in <br>Pepsi's eye. <br>     We turn now to a different claim by Ocean Spray:  that <br>Pepsi has breached and will continue to breach its obligation under <br>the 1991 agreement to keep confidential Ocean Spray's business <br>information.  Ocean Spray complains that at the top level of Pepsi <br>management, the same individuals are responsible not only for Ocean <br>Spray but for Tropicana.  Ocean Spray points to cases in which the <br>courts have granted injunctions merely to prevent conduct creating <br>a risk that confidential information will be divulged or misused.  <br>See, e.g., Crane Co. v. Briggs Manufacturing Co., 280 F.2d 747, 750 <br>(6th Cir. 1960); Lumex, Inc. v. Highsmith, 919 F. Supp. 624, 636 <br>(E.D.N.Y. 1996). <br>     Ocean Spray does not spend much time on this issue in its <br>brief, addressing it in only a few paragraphs.  The case law <br>suggests that almost everything turns upon the facts, including the <br>nature of the transaction, the threat of wrongful disclosure, the <br>consequences if it occurs, and the reach of the relief sought.  <br>Nothing that we can discern in reviewing the affidavits persuades <br>us that there is anything inevitable about the misuse by Pepsi of <br>whatever information Ocean Spray has given or chooses to give in <br>the future. <br>     Furthermore, Ocean Spray's claim as to disclosure is <br>offered only to support the far-reaching injunction it seeks <br>restraining Tropicana from distributing competing products for the <br>life of the agreement.  Nothing prevents Ocean Spray from seeking <br>narrower relief, if this should prove warranted, enjoining the <br>misuse of confidential information, limiting its distribution <br>within Pepsi, or otherwise tailoring relief to meet the claimed <br>threat of harm.  Whether blatant misuse might justify even broader <br>relief against Tropicana's distribution activity is an issue that <br>need not now be faced. <br>     Affirmed.</pre>

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