SMC Corp., Ltd. v. Lockjaw, LLC, __ F. Supp.2d __, 2007 WL 983850 (N.D. Ill. Apr. 3, 2007) (Castillo, J.).
Judge Castillo granted plaintiff’s motion for a preliminary injunction, enjoining defendants from breaching the parties’ agreement, unless plaintiff acted in a manner triggering the agreement’s termination provision, and from contacting plaintiff’s customers for any purpose without plaintiff’s consent. Plaintiff was the exclusive distributor of defendants’ patented Lockjaw pliers in certain Western European countries. For about eighteen months, plaintiff’s distributed defendants’ pliers without incident. But then defendants altered payment terms, which was their right if they followed certain procedures. Plaintiff alleges that defendants did not follow those procedures and based on this dispute the relationship appears to have broken down. Shortly after defendants altered the payment terms, plaintiff filed this suit seeking, among other things, a declaratory judgment that the agreement is binding and enforceable, and that defendants breached the agreement. Plaintiff also sought an injunction to prevent the defendants from terminating the agreement and/or contacting plaintiff’s customers. Relying upon the UCC, the Court found that plaintiff had a likelihood of success on the merits based upon, among other things, the fact that its brief (and cured) nonpayment for two shipments likely did not constitute a breach of the agreement.
The Court also held that plaintiff would likely suffer irreparable harm without an injunction. Plaintiff’s goodwill would be damaged by loss of customers and harm to plaintiff’s reputation. Plaintiff’s potential loss of goodwill tipped the balance of harms in its favor. The Court also held that the public interest was served when courts enforce valid contracts. As a result, the Court granted a preliminary injunction against defendants.
But in order insure defendants against an erroneous injunction, the Court ordered plaintiff to post a $500,000 bond to protect defendants’ potential lost profits, should plaintiff lose or fail to pay for any orders placed with defendants. The Court also required that plaintiff provide defendants with letters of credit to prove its ability to pay defendants.