The opinion of the court was delivered by: David G. Larimer United States District Judge
DECISION AND ORDER GRANTING PRELIMINARY INJUNCTION
For over a decade, Collins Ink Corporation ("Collins"), had a contract with Eastman Kodak Company ("Kodak") to supply ink for use in Kodak's commercial ink-jet printers, including the Versamark line of printers. The most recent three-year Agreement, effective December 15, 2008, was in effect when Collins' President, Lawrence Gamblin, wrote to Kodak personnel on October 10, 2011 (Ex. C to Declaration of Douglas S. Tinnel [Dkt. #3-3]) (sometimes "Gamblin letter") advising Kodak that Collins was terminating the Agreement "effective immediately." The Gamblin letter was startling and unexpected and galvanized Kodak to action.
Within days, Kodak filed a complaint (Dkt. #1) in this case alleging breach of contract and seeks various forms of relief. In addition, Kodak moved immediately, with supporting documentation (Dkt. #3) for a preliminary injunction to compel Collins to comply with its contractual obligations under the Agreement and to desist acting contrary to that Agreement.
The Court conferred with counsel within days by telephone and established a schedule for briefing and argument of Kodak's motion for a preliminary injunction. Responding papers were filed (Dkt. ##10, 11), but when the parties appeared for argument on October 24, 2011, they announced that they had reached an agreement to keep the contract in place and maintain the status quo for at least a week for the purpose of discussing possible resolution.
The parties were unable to consummate an agreeable resolution and additional papers were filed and the parties appeared and argued their respective positions at length before this Court on November 1, 2011. At that time, the parties agreed to maintain the status quo pending the decision of this Court and the matter was taken under advisement.
After reviewing the complaint, the declarations and exhibits submitted on the motion for a preliminary injunction, and having considered the comments of counsel, I believe that Kodak has established its entitlement to a preliminary injunction, enjoining Collins from taking steps to terminate the Agreement and compelling Collins to fully comply with that Agreement and all of its terms.
Relevant matters surrounding this dispute occurred within a relatively brief period of time and are not in dispute.*fn1 There is no dispute that the Agreement between Kodak and Collins (Dkt. #3-4 at 1) was executed and became effective in December 2008. The Agreement was for a three-year term but also contained an automatic renewal provision at Section 10.01 of the Agreement. That provision, which is at the heart of this dispute, reads in full as follows:
10.01 Term and Renewal. The initial term of this Agreement shall be for a period of three (3) years commencing on the Effective Date hereof, and shall automatically renew annually thereafter. Either party may terminate this Agreement for any reason with one hundred and eighty (180) days written notice.
It appears that there were three or four prior contracts between the parties over the past decade. There apparently were negotiations relative to each new Agreement with some modest changes made over the course of time. The parties had never relied on the automatic renewal provision but had always crafted a new agreement prior to the expiration of the former one.
It appears that during the Spring and Summer of 2011, Gamblin and representatives of Kodak had exchanged correspondence and even a draft, proposed new agreement relative to their business operations. But, no new agreement was ever agreed to or executed prior to Gamblin's letter of October 10, 2011. That letter, purporting to immediately terminate the existing Agreement is the spark that occasioned the conflagration that is the pending litigation and Kodak's motion for injunctive relief.
Gamblin's letter of October 10, 2011, is crucial to the issues before this Court, both for what it says and for what it fails to say. The letter purports to terminate the Agreement but makes no reference whatsoever to the very specific termination provisions contained in the Agreement at Section 10.02. That section could not be clearer, and I set it forth here in full:
10.02 Termination for Cause. Either party may terminate this Agreement upon written notice of termination to the other party for any of the events given in sub-paragraphs (a) and (b).
a. The other party materially breaches this Agreement and such breach remains uncured for thirty (30) days following written notice of breach by the terminating party.
b. A petition for relief under any bankruptcy legislation is filed by or against the other party, or other party makes an assignment for the benefit of creditors, or a receiver is appointed for all or a substantial part of the other party's assets, and such petition, assignment or appointment is not dismissed or vacated within thirty (30) days.
The Gamblin letter, as mentioned, makes no reference to any of those provisions. Rather, the October 10, 2011 termination letter sets forth Gamblin's concern with Kodak's present financial circumstances and references "recent news reports." He also states his belief that there is a "significant probability" that Kodak could default on its financial obligations at some future time.
Because of that anxiety, Gamblin unilaterally purported to terminate the Agreement by immediately ceasing shipments of ink unless and until Kodak agreed to pay for such shipments on a cash on delivery basis ("COD"). That decision relative to new payment requirements was contrary to the payment requirement set forth in the Agreement (Section 2.08) which provided that "except where otherwise mutually agreed" payment terms would be net sixty (60) days, that is, Kodak would make payment sixty (60) days after receipt of an invoice from Collins.
There apparently is no dispute that Kodak was and is now current on all of its financial obligations to Collins. It is true that because of the volume of ink supplied by Collins pursuant to the Agreement, the accounts receivable could exceed two million dollars on prior invoices at a given time. There is no evidence, however, that Kodak neglected or refused to pay any invoices and Gamblin's letter of October 10 did not base the termination decision on Kodak's defalcation on any payment that was due.
It appears that even prior to Gamblin's letter, Collins had stopped production for Kodak and within days orders for ink in the amount of $250,000 were not filled.*fn2 Declaration of DouglasTinnel, October 17, 2011 ...