In addition to bringing suit against defendants Harris Landman and N. Whitney Delgin, both of whom are shareholders of Bellini Corp., the plaintiffs also have joined as defendants Cal-Linda Imports, Inc. ["Cal-Linda"] (a corporation of which defendant Landman is a principal), and Berg East Imports, Inc. and Berg Furniture USA, Inc. [hereinafter, collectively referred to as "Berg"], each of which is a New Jersey corporation. The plaintiffs allege that Berg is manufacturing and selling look-alike Bellini furniture within the plaintiffs' exclusive region without the plaintiffs' consent, and has become privy to certain trade secrets that may dilute the value of the Bellini trademark.
Pending before the Court is plaintiffs' motion for a preliminary injunction. If granted without modification, the preliminary injunction would enjoin defendants Landman, Delgin and Cal-Linda from disclosing any trade secrets or proprietary information, and from engaging in any marketing activity with respect to any furniture under the name Bellini, or any furniture resembling any line of furniture sold by Bellini franchises, within the plaintiff shareholders' exclusive territory. The territory at issue is essentially comprised, subject to certain exceptions, of those states situated east of the Mississippi River. The preliminary injunction also would enjoin defendant Berg from disclosing any trade secrets and proprietary information, and from manufacturing any furniture under the Bellini name, or any Bellini look-alike furniture.
Plaintiffs' application for a temporary restraining order pending this hearing was denied on June 28, 1996.
A hearing was held on this matter on July 10 and 11, 1996. This Opinion and Order constitutes the Court's Findings of Fact and Conclusions of Law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.
Bellini Corp. is engaged in the nationwide distribution of baby and children's furniture though retail franchise outlets. Plaintiffs Barry and Irving Freedberg are 50% shareholders in Bellini Corp., while defendants Landman and Delgin hold the remaining 50% interest in Bellini. A shareholder agreement between these parties, executed in May 1985 [the "Shareholder Agreement"], differentiates exclusive geographical territories between the Freedbergs on the one hand, and Landman and Delgin on the other. Essentially, subject to certain exceptions,
the Freedbergs are provided the region east of the Mississippi River [the "Class A Territory"], while Landman and Delgin have been given the region west of the Mississippi River [the "Class B Territory"].
According to the plaintiffs, the Shareholder Agreement expressly prohibits Landman and Delgin from engaging in any Bellini operations, pursuing business opportunities, or selling or purchasing any furniture in or from the Freedbergs' exclusive geographical territory.
The plaintiffs allege that, notwithstanding this prohibition, Landman and Delgin, acting individually or through codefendant Cal-Linda, are presently engaged in Bellini business operations and pursuing business opportunities within the Freedbergs' exclusive geographical territory and also have purchased furniture from the Freedbergs' exclusive territory, all in contravention of the Shareholder Agreement and Landman and Delgin's fiduciary obligations to the plaintiffs.
Plaintiffs further allege that, in the furtherance of the above acts, defendants Landman and Delgin have disclosed Bellini's trade secrets and confidential proprietary information -- including design and manufacturing specifications, pricing information and other data regarding its distinctive furniture -- to defendant Berg, a manufacturer within the Freedbergs' exclusive territory, for the purpose of purchasing furniture from Berg. According to the plaintiffs, these actions will have the effect of permitting Berg to engage in direct competition with the Freedbergs and their corporate entity, Barry Imports, Inc.,
within the Freedbergs' exclusive territory.
The defendants, in turn, contend that the Shareholder Agreement applies solely to the sale of Bellini furniture at the wholesale level, exclusive of manufacturing, and that therefore Cal-Linda's purchase of furniture from Berg does not abridge this agreement. The defendants contend that the limited scope of the Shareholder Agreement is suggested by the fact that at the time of the agreement's execution, Bellini purchased all of its furniture from Europe. Thus, the defendants contend that the contracting parties did not intend the Shareholder Agreement to prohibit a shareholder's purchase of manufactured goods from another's territory. According to the defendants, such intent of the parties is demonstrated through their subsequent conduct whereby each group of shareholders purchased goods from the other's territory without securing prior written consent.
In addition, the defendants argue that the plaintiffs should not be entitled to injunctive relief because their delay of several weeks in bringing this lawsuit rebuts their assertion of irreparable harm.
Finally, the defendants contend that the plaintiffs come before this Court with unclean hands, having forced Cal-Linda to seek a new manufacturer of the Corso line of furniture that Berg is producing for it as a result of the Freedbergs' blatant mismanagement of Giani Enterprises, Ltd. ["Giani"]. The record shows, and the Court finds, that Giani is a corporation in which the parties had invested substantial funds for the purpose of manufacturing goods for both groups of shareholders.
I. Standards Governing Motion for Preliminary Injunction
"To obtain a preliminary injunction, a plaintiff must demonstrate: (1) either a likelihood that he will succeed on the merits of his claim, or that the merits present serious questions for litigation and the balance of hardships tips decidedly toward the plaintiff; and (2) that without the injunction, he will likely suffer irreparable harm before the court can rule upon his claim." Fisher-Price, Inc. v. Well-Made Toy Mfg. Corp., 25 F.3d 119, 122 (2d Cir. 1994) (emphasis in original) (citing Laureyssens v. Idea Group, Inc., 964 F.2d 131, 135-36 (2d Cir. 1992); Citibank, N.A. v. Citytrust, 756 F.2d 273, 275 (2d Cir. 1985)).
II. Irreparable Harm
Turning to consider the above standard in reverse sequence, the Court finds that the plaintiffs succeed in establishing the requirement of irreparable harm. First, P 8.11 of the Shareholder Agreement expressly provides that a violation of this agreement will cause irreparable injury to the other parties thereto, thereby entitling such other parties to injunctive relief. Although the Court is not conclusively bound by this provision in the exercise of its equitable powers, it nevertheless provides strong evidence of the parties' mutual understanding that an abrogation of the Shareholder Agreement would cause irreparable injury. The conclusion that money damages are inadequate to remedy plaintiffs' injuries is further reinforced in view of the difficulty in placing a price tag on lost trade secrets or goodwill, and the location of Berg within plaintiffs' territory.
The defendants argue that any harm that the plaintiffs may sustain would not be immediate, and in fact is inchoate, because pursuant to the Memorandum of Understanding between Cal-Linda and Berg, a six-month moratorium for the severance of their contractual relationship is operative upon notice of termination of the agreement between Cal-Linda and Berg. The Court rejects the defendants' contention, however, because it fails to consider the possibility of immediate harm that could ensue should Berg decide to breach its agreement with Cal-Linda and sell Bellini furniture within the Freedbergs' territory, and the potential profits to Berg resulting therefrom which could overcome its economic disincentive to breach. In addition, the Court finds without merit the defendants' contention that plaintiffs' delay of approximately six weeks in bringing this action counsels against a finding of irreparable harm. Thus, provided that plaintiffs succeed in making the necessary showing with respect to the merits of their claims, the plaintiffs will be entitled to injunctive relief.
III. Analysis of the Merits
A. The Ambiguous Agreement
The parties' contentions concerning the merits of plaintiffs' claims center around the Shareholder Agreement. At the heart of this controversy is P 2.10, which provides as follows:
2.10 The parties hereto agree not to wholesale Bellini furniture to any person or entity (i) which is not doing business as a Bellini franchisee or (ii) at least 50% of the equity in which is not owned by the Company or any of the Shareholders and each agrees to obtain the prior written consent of the other parties prior to the sale of goods in, or purchase of goods from, the other's Territory.