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Douglas E. Reuter v. Jax Ltd.

March 29, 2011

DOUGLAS E. REUTER,
PLAINTIFF,
v.
JAX LTD., INC., DEFENDANT.



The opinion of the court was delivered by: Susan Richard Nelson, United States District Judge

MEMORANDUM OPINION AND ORDER

This matter came before the Court on Defendant Jax Ltd., Inc.'s motion for a temporary restraining order against Plaintiff Douglas E. Reuter (Doc. No. 8). Since briefing was allowed by the Court by both parties and a hearing was conducted on the matter, the motion was converted into one for a preliminary injunction. So construed, this Court granted the motion as reflected in Jax's revised proposed Order, Reuter having agreed to the terms of that proposed Order with the exception of the amount of the bond. (Doc. No. 21.) This Memorandum Opinion and Order explains the Court's Order in greater detail.*fn1

I. FACTUAL AND PROCEDURAL BACKGROUND

Reuter and Jax originally entered into a License Agreement in June 1981, under which Reuter granted Jax an exclusive license to manufacture, distribute and sell a board-game, then known as Sequence Five, that Reuter asserted he invented. That Agreement was amended in January 1992. Over the years, the original game and subsequent variations on it--and Jax's efforts in distributing them--have been very successful. The relationship has generated substantial income for both parties. And Jax, as Reuter himself acknowledges, obtains some 80 percent of its revenue from distributing the games. (Doc. No. 1, ¶ 10.)*fn2

The parties have a history of disputes regarding this Agreement and the games it covers. The 1992 amendment was entered, at least in part, to resolve a conflict between the parties regarding distribution of the games through Target and Wal-Mart as well as an earlier attempt by Reuter to terminate the Agreement due to Jax's alleged default. And litigation in 2005 in this district resulted in a temporary restraining order against Reuter. Jax Ltd., Inc. v. Reuter, No. 05-CV-2658 (DWF/SRN), 2005 WL 3272060 (D. Minn. Nov. 28, 2005).

Reuter filed the present action on February 9, 2011, claiming that Jax breached several terms of the License Agreement and seeking a declaration of its rights under that Agreement. (Doc. No. 1.) Reuter's request for relief includes a declaration that Jax had breached the Agreement and that "Reuter terminated the [Agreement] by providing written notice of such to Jax in accordance with the terms of the [Agreement]." (Id. at 15.) Moreover, Reuter seeks a declaration that he "may proceed with post-termination activity in relation to a contract breach by Jax" and that "the licensor-licensee relation between Reuter and Jax has ended." (Id. at 1.)

Granted, the Agreement provides that Reuter, upon Jax's failing to cure any default within thirty days of Reuter providing notice of such default, "may terminate [the] Agreement forthwith by so notifying [Jax]." (Doc. No. 1-1 (License Agreement), at 7.) And although Reuter purported to have terminated the Agreement in accordance with that contractual provision, he also expressly asserted that "[a]n actual controversy exists as Jax maintains it did not breach the contract and will dispute any termination." (Id. at 2.) Indeed, Reuter asserts that he filed the present declaratory judgment action because "Jax had steadfastly denied any wrongdoing." (Doc. No. 17, at 3.)

Jax's Answer included counterclaims seeking declaratory relief. (Doc. No. 6.) On March 11, 2011, Jax then filed a motion for a temporary restraining order, contending that Reuter's action was intended "to destroy Jax's business" by "circumvent[ing] the judicial process." (Doc. No. 10, at 1-2.) Jax asserted that Reuter had informed several of Jax's customers that he already had terminated the Agreement, thereby jeopardizing the status quo while the Court considers Reuter's request for a judicial declaration that the Agreement has been terminated. Thus, injunctive relief was necessary immediately because "[b]y the time a trial on the merits has taken place, Jax's long-term relationships with numerous sales representatives and retailers will likely already be irreparably damaged, if not destroyed. Jax's good name and reputation would be damaged." (Doc. No. 10, at 16.) This Court ordered Reuter to file a response to Jax's motion and set a date for oral argument. (Doc. No. 15.)

II. DISCUSSION

The en banc Eighth Circuit clarified the analysis for preliminary injunctive relief in Planned Parenthood Minnesota v. Rounds, 530 F.3d 724 (8th Cir. 2008) (en banc).*fn3 The court noted that under its earlier en banc decision in Dataphase Systems, Inc. v. C L Systems, Inc., issuance of preliminary injunctive relief depends upon a "flexible" consideration of (1) the threat of irreparable harm to the moving party; (2) balancing this harm with any injury an injunction would inflict on other interested parties; (3) the probability that the moving party would succeed on the merits; and (4) the effect on the public interest. Rounds, 530 F.3d at 729 (citing 640 F.2d 109, 113 (8th Cir. 1981) (en banc)). With respect to succeeding on the merits, the Rounds court clarified that unless the movant is seeking to enjoin "government action based on presumptively reasoned democratic processes," courts "should still apply the familiar 'fair chance of prevailing' test." Id. at 732.*fn4 The "fair chance" standard is less demanding than the "likely to prevail" standard applicable to injunctions sought against governmental action such as a statute, and a "fair chance of prevailing" does not require a greater than fifty per cent likelihood of prevailing on the merits. See Rounds, 530 F.3d at 731 (quoting Dataphase, 640 F.2d at 113).*fn5

Here, Jax has demonstrated a "fair chance" of prevailing on the merits. On the present preliminary record, Jax has raised serious questions as to whether the Agreement has been violated, and if so, by which party. (Doc. No. 6 (Answer and Counterclaims) (seeking rescission of the Agreement and disgorgement of royalties paid to Reuter because "Reuter never had the rights which he warranted to Jax at the time he entered" the Agreement); Doc. No. 10 (claiming that Reuter's claims are "baseless").) At a bare minimum, Jax has as much of a chance of success on the merits as does Reuter.

The other key factor in any analysis of preliminary injunctive relief is irreparable harm. Chicago Stadium Corp. v. Scallen, 530 F.2d 204, 206 (8th Cir. 1976). Indeed, "'[t]he basis of injunctive relief in the federal courts has always been irreparable harm and inadequacy of legal remedies.'" Rounds, 530 F.3d at 732 n.5. Thus lack of irreparable harm will usually preclude preliminary injunctive relief regardless of the other factors. Dataphase, 640 F.2d at 114 n.9 ("[T]he absence of a finding of irreparable injury is alone sufficient ground for vacating the preliminary injunction.").

Here, the Court finds that Jax has shown it likely would suffer irreparable harm absent the preliminary injunction. The Court recognizes that the licensing Agreement between the parties reflects a commercial enterprise producing substantial income for both parties. But the particular facts of this case refute any argument that damages alone would suffice to compensate Jax if this Court were not to issue such injunctive relief.

Jax is a family business that derives about 80 percent of its revenues from sales of the games under the Agreement. Moreover, this licensing relationship has existed for almost thirty years. As recognized by the court in the parties' earlier litigation in this district, any unilateral non-judicial termination of the relationship by Reuter before this Court addresses the merits could likely inflict irreparable injury on Jax. Jax Ltd., Inc. v. Reuter, No. 05-CV-2658 (DWF/SRN), 2005 WL 3272060, *4-5 (D. Minn. Nov. 28, 2005) (finding that denial of TRO "would be potentially devastating to Jax"). Cf. Ryko Mfg. Co. v. Eden Servs., 759 F.2d 671, 673 (8th Cir. 1985) (affirming injunction against termination of distributorship ...


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