United States District Court, W.D. New York
June 8, 2005.
XELUS, INC., CLICK COMMERCE, INC., Plaintiffs,
SERVIGISTICS, INC., Defendant.
The opinion of the court was delivered by: DAVID LARIMER, Chief Judge, District
DECISION AND ORDER
On June 6, 2005, plaintiffs, Xelus, Inc. and its parent
corporation Click Commerce, Inc. ("Click"), filed a complaint in
this action, along with a motion for a temporary restraining
order ("TRO") and a preliminary injunction pursuant to Rule 65 of
the Federal Rules of Civil Procedure. In short, plaintiffs allege
that defendant, Servigistics, Inc., which is a competitor of
Xelus in the inventory management software industry, has been
disseminating false and defamatory information about Xelus to
Xelus's business partners, customers, and prospective customers,
thereby threatening Xelus's relationships with those entities.
Plaintiffs seek to enjoin Servigistics from continuing to engage
in such activities, and from making any statements in commerce or
trade concerning certain matters pertaining to Xelus and Click. Plaintiffs have submitted various materials in support of their
motion, and defendant has also submitted by fax some materials in
opposition to the motion. The Court spoke with counsel for both
sides concerning the motion in a telephone conference on June 7.
After considering the parties' submissions and the comments of
counsel, the Court grants plaintiffs' motion in part, and denies
it in part, as set forth below.
In order to obtain a TRO, plaintiffs must show: (1) that absent
such an order, they are likely to suffer irreparable harm; and
(2) either a likelihood of success on the merits or "sufficiently
serious questions going to the merits to make them a fair ground
for litigation, with a balance of hardships tipping decidedly in
the [applicant's] favor." In re Feit & Drexler, Inc. v.
Drexler, 760 F.2d 406, 416 (2d Cir. 1985) (citations omitted);
see also Jackson Dairy, Inc., v. H.P. Hood & Sons, Inc.,
596 F.2d 70, 72 (2d Cir. 1979).
The Second Circuit has deemed the threshold showing of
"irreparable harm" to be of particular significance under Rule
65, regardless of the strength of the movant's case on the
merits. See, e.g., Reuters Ltd. v. United Press Int'l, Inc.,
903 F.2d 904, 907 (2d Cir. 1990) ("a showing of probable
irreparable harm is the `single most important prerequisite for
the issuance of a preliminary injunction'") (quoting Bell &
Howell: Mamiya Co. v. Masel Supply Co. Corp., 719 F.2d 42, 45
(2d Cir. 1983)). Accordingly, "[i]rreparable harm must be shown by the
moving party to be imminent, not remote or speculative, and the alleged
injury must be one incapable of being fully remedied by monetary damages." Reuters, 903 F.2d at 907 (citing Tucker
Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 972 (2d Cir.
1989)). With respect to commercial torts, the Court of Appeals
for the Second Circuit has held that losses that are difficult to
quantify can constitute irreparable harm. See Gerard et al. v.
Almouli, 746 F.2d 936, 939 (2d Cir. 1984) ("The likelihood of
irreparable harm was demonstrated since appellees' damages may
not be quantified").
In the case before me, I find that plaintiffs have adequately
shown a likelihood of imminent irreparable harm to warrant the
issuance of a TRO as to certain acts of defendant and its
employees. At the same time, however, I find that there are
issues of fact that preclude the issuance of a preliminary
injunction at this point.
Plaintiff has submitted some documentary evidence that
Servigistics has contacted one of Xelus's business partners,
Oracle, Inc., and implied that Click's acquisition of Xelus would
impair Xelus's ability to adequately service its customers. In
one e-mail message to Oracle, for example, Servigistics stated
that Click's acquisition of Xelus was "a classic stock roll-up
play" and that Click typically "acquires a company, lays off half
the staff, mines the revenue stream, and moves on to the next
acquisition." Plaintiff's Memorandum of Law (Dkt. #3) Ex. A.
Servigistics does not appear to deny that it sent these messages.
In addition, in a complaint filed against Xelus and Click in a
Georgia state court on June 3, 2005, Servigistics seeks a
declaration that its "continued communication . . . with
customers and potential customers within the industry currently
served by . . . Xelus . . . is proper. . . ." Plaintiff's
Memorandum of Law Ex. H ¶ 23.
Plaintiffs have also shown a likelihood of irreparable harm absent the
issuance of a TRO. Xelus (together with Oracle) is apparently in the midst
of contract talks and bidding processes with a number of entities, including American Airlines and the United
States Air Force. Decisions on who will be awarded these
contracts which are potentially worth millions of dollars are
allegedly expected to be announced soon. If in fact Servigistics
is disseminating false, disparaging information about Xelus, that
could hurt Xelus's chances of securing those contracts.
Although the damages flowing from loss of a given contract may
in some instances be calculable, such a calculation might be much
more difficult where the contractual relationship would have
lasted for many years (the Air Force contract would run for six
years), or where the contracting parties could reasonably have
been expected to maintain a long-term relationship. See, e.g.,
Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69 (2d Cir. 1999)
(injunctive relief is appropriate where it would be "very
difficult to calculate monetary damages that would successfully
redress the loss of a relationship with a client that would
produce an indeterminate amount of business in years to come");
see also Alcatel Space, S.A. v. Loral Space & Communications
Ltd., 154 F.Supp.2d 570, 584 (S.D.N.Y. 2001) ("Although the loss
of these contracts may not destroy Alcatel's business, the limited number of
satellite opportunities available warrants a finding of irreparable harm"),
aff'd, 25 Fed.Appx. 83 (2d Cir. 2002).
In addition, the Second Circuit has recognized that damage to
one's business reputation and loss of customer goodwill can
constitute irreparable harm. See, e.g., Register.Com, Inc. v.
Verio, Inc., 356 F.3d 393, 404 (2d Cir. 2004) ("the district
court did not abuse its discretion in finding that, unless
specific relief were granted, Verio's actions would cause
Register irreparable harm through loss of reputation, good will,
and business opportunities"); see also TVT Records v. Island Def
Jam Music, 225 F.Supp.2d 398, 405 (S.D.N.Y. 2002) ("Beyond losses,
the Second Circuit regards damage to business relationships
significant") (citing Reuters, 903 F.2d at 907-909).
Servigistics' alleged disparaging comments about Xelus could
certainly cause such damage. In fact, apparently in reaction to
an e-mail message from Servigistics in which Servigistics stated
that it had been awarded the American Airlines contract over
Xelus, see Plaintiffs' Memorandum of Law Ex. A, Oracle sent
Xelus an e-mail message stating, "You loss [sic] AMERICAN? I
thought this was in the bag for you guys! And is this true about
Click Commerce being a gut and sell company? If this is true,
then we have a problem." Plaintiffs' Memorandum of Law Ex. E.
Oracle also stated that if these things were true, "we need to
understand and re-evaluate our options." Id. Although Xelus
apparently took steps to reassure Oracle about these matters,
this does indicate that Servigistics' negative statements about
plaintiffs were not without effect.
There is evidence before me, then, that Servigistics has
engaged in some of the conduct alleged in the complaint, and that
Xelus faces irreparable harm as a result. As stated, however,
there are also some factual disputes here. In particular,
although Servigistics does not appear to deny that it has made
some of the alleged communications with Oracle and others,
Servigistics maintains that its statements about plaintiffs are
true. Servigistics has submitted some evidence in support of that
assertion, including a report by an independent industry research
and analysis firm, AMR Research, which states that Xelus has had
certain problems recently and has lost market share, and
suggesting uncertainty, if not doubt, about whether Click's
acquisition of Xelus will benefit Xelus or its customers. Thus,
it appears that there may be a legitimate basis for Servigistics'
suggestion that Xelus faces an uncertain future. These factual disputes preclude the issuance of a preliminary
injunction at this time, and instead require the Court to hold a
prompt hearing before deciding whether to grant an injunction.
"The existence of factual disputes necessitates an evidentiary
hearing . . . before a motion for a preliminary injunction may be
decided." Kern v. Clark, 331 F.3d 9, 12 (2d Cir. 2003) (quoting
Commodity Futures Trading Comm'n v. Incomco, Inc.,
649 F.2d 128, 131 (2d Cir. 1981)).
The purpose of a temporary restraining order, however, is
simply "to preserve an existing situation in statu quo until
the court has an opportunity to pass upon the merits of the
demand for a preliminary injunction." Pan Amer. World Airways,
Inc. v. Flight Engineers' Intern. Ass'n, 306 F.2d 840, 842 (2d
Cir. 1962); see also LaRouche v. Kezer, 20 F.3d 68, 74 (2d Cir.
1994) ("To preserve the status quo a court may require the
parties to act or to refrain from acting"); see, e.g., AIM
Intern. Trading LLC v. Valcucine SpA., 188 F.Supp.2d 384, 388
(S.D.N.Y. 2002) (issuing TRO to preclude defendant supplier from
terminating exclusive distributorship agreement, since plaintiff
distributor was likely to suffer irreparable harm as result of
supplier's allegedly improper termination of agreement).
Accordingly, the Court will issue a TRO enjoining Servigistics
from engaging in engaging in the types of wrongful conduct
alleged in the complaint, pending a hearing on plaintiffs' motion
for a preliminary injunction. The Court will not, however, issue
all of the relief sought by plaintiffs in their proposed TRO,
which I believe is overbroad in some respects. For example,
plaintiffs would have the Court enjoin Servigistics from "making
any statements in commerce or trade about Click's plans with
regard to Xelus. . . ." (Emphasis added.) Such a restriction
would, I believe, impermissibly and unjustifiably impinge on
Servigistics' right to commercial speech. The terms of the TRO, then, will be more limited than plaintiffs have
proposed, as set forth in the Conclusion of this Decision and
Plaintiffs' motion for a temporary restraining order and a
preliminary injunction, and for an expedited hearing (Dkt. #2) is
granted in part and denied in part.
Defendant Servigistics, Inc. is hereby enjoined from making any
false or misleading statements or factual representations about
plaintiffs' business or about plaintiffs' employees, agents, or
representatives. Defendant is further enjoined from engaging in
any activity to induce plaintiff Xelus, Inc.'s employees to
breach their contractual obligations to Xelus.
Plaintiffs must file any additional papers regarding their
motion for a preliminary injunction no later than ten (10) days
after the date of issuance of this Decision and Order. Defendants
must file their reply no later than ten (10) days after their
receipt of plaintiffs' papers.
A hearing on plaintiffs' motion for a preliminary injunction
will be held on July 6, 2005 at 9:00 a.m.
In all other respects, plaintiffs' motion is denied.
IT IS SO ORDERED.
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