Opinion
01 Civ. 2763 (HB)
April 19, 2001
OPINION ORDER
Plaintiff commenced this action on March 30, 2001 and filed an Order to Show Cause seeking a Temporary Restraining Order on April 3, 2001. Plaintiff seeks a restraining order that would bar defendant Alza from terminating the parties' distribution and supply agreement. This Court held a hearing on April 9, 2001 at 9:30 a.m. and a follow-up telephone conference call on April 11, 2001. For the following reasons, plaintiffs motion is denied.
BACKGROUND
On December 19, 1997, Hogil Pharmaceutical Corporation ("Hogil"), Innomed's predecessor in interest and parent corporation, and defendant Alza Corporation entered into a distribution and supply agreement under which Alza agreed to sell a cold and allergy medication to Hogil. Hogil then re-sold the product as EFIDAC 24. In 1998, Hogil assigned its rights under the agreement to Innomed, an entity formed for the sole purpose of distributing EFIDAC 24.
The road since Innomed assumed the distribution agreement has been a rocky one, largely because Innomed has been unable to meet its various payment obligations. Although Alza modified the payment terms in Innomed's favor on two occasions, Innomed remained in arrears. Innomed blames its difficulties on, among other things, a decline in the sales of EFIDAC 24 after a marketing magazine published an article critical of EFIDAC 24. Innomed claims that despite its best efforts, the article had and continues to have a substantial impact on its sales.
On November 26, 2000, with Innomed in breach, Alza informed Innomed that it would terminate the agreement at the conclusion of the contract's 60 day cure period. Negotiations between the parties ensued, and Alza agreed to give Innomed additional time, apparently for the purpose of allowing Innomed time to find a third party that would assume the contract. Although Innomed found a potential assignee during this time, it was unable to consummate the transaction within the allotted time, and Alza terminated the agreement. The parties dispute whether the termination date was March 26, 2001 or March 30, 2001, but suffice it to say that Alza gave Innomed 120 days to cure, more than the contract required, before plaintiff terminated the agreement.
DISCUSSION
In order to grant a temporary restraining order, a court must find 1) that the plaintiff is at risk of imminent irreparable harm, and 2) that the plaintiff has demonstrated a likelihood of success on the merits or sufficiently serious questions going to the merits to make them a fair ground for litigation plus a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Federal Express Corp. v. Federal Espresso, Inc., 201 F.3d 168, 173 (2d Cir. 2000). As the defendant does not appear to challenge the irreparable harm prong, for the purpose of this motion I will assume that plaintiff has demonstrated irreparable harm.
I. Likelihood of Success on the Merits
Innomed offers three arguments to support its claim that Alza improperly terminated the parties' agreement: 1) that Alza did not provide Innomed with a sufficient opportunity to cure the breach; 2) that the force majeure provision prevented the termination; and 3) that Alza acted in bad faith.
A. Opportunity to Cure
Innomed contends that Alza failed to provide it with sufficient time to cure as required by the agreement. Not a model of clarity, the agreement provides that it may be terminated:
by either party on 60 days' prior written notice to the other party, if such other party is in material breach of this Agreement, and such breach is not cured within 60 days (or if such breach is of a nature such that it cannot be cured within 60 days despite diligent efforts, then such 60 day period shall be extended for a longer period as is reasonably necessary to cure such breach using diligent efforts) after the date after such notice . . .
Innomed argues that its failure to pay Alza was of such a "nature" as to warrant the extended cure period since the publication of the article that allegedly sent EFIDAC 24's sales plummeting was a circumstance beyond its control. I do not believe the provision allowing an additional "reasonable" period of time was intended to cover scenarios such as this. I agree with the defendant that failure to pay is unlikely to ever be of a "nature" that requires additional time to cure, as it could always be cured within a 60 day period if in no other way than by payment. It is highly unlikely that pointing the finger at bad press, particularly when the bad press consists of a single three year old article, alters this analysis. If it did, then practically every failure to pay could warrant a time extension, and the provision for a 60 day cure period would be rendered nugatory.
For these reasons, I find that plaintiff has not demonstrated that it is likely to succeed on this claim.
B. Force Majeure Provision
Innomed argues that the force majeure provision in the parties' distributorship agreement was triggered by the 1998 article and that this prevents Alza from terminating the agreement. Force majeure provisions simply do not apply to the vicissitudes of the marketplace. See Butler v. Nepple, 6 Cal.Rptr. 767 (Cal. 1960) ("Even in the case of a force majeure provision in a contract, mere increase in expense does not excuse the performance unless there exists `extreme and unreasonable difficulty, expense, injury, or loss involved."); San Mateo Community College Dist. v. Half Moon Bay Ltd P'ship, 76 Cal.Rptr.2d 287 (Cal.Ct.App. 1998) (holding that force majeure provision did not apply as appellants' arguments that the market was poor and that air quality regulations impeded their drilling were insufficient to show that it had been impossible for them to perform); Horsemen's Benevolent Protective Assoc. v. Valley Racing Assoc., 6 Cal.Rptr.2d 698 (Cal.Ct.App. 1992) (rejecting the argument that the failure to pay the purse amount stated in the contract triggered the force majeure provision because the California Horse Racing Board had reduced the moneys for purse distribution). Thus, plaintiff is unlikely to succeed on this claim as well.
Plaintiff offers only one case in support of this argument, Pacfic Vegetable Oil Corp. v. C.S T., 174 P.2d 441 (1946). As the date suggests, this case involved a shipping company who was delayed in its deliveries by circumstances attributable to World War II. A delay caused by war related events is simply not comparable to the effects of a negative magazine article. that granting the TRO would place Alza in limbo as it would be unable to pursue alternative business endeavors, which, at this point, it seems entitled to do. Thus, I find that plaintiff has also, failed to show that the hardships tip decidedly in its favor.
C. Bad Faith Termination
Finally, plaintiff argues that defendant acted in bad faith when it terminated the agreement and suggests that this may, in some way, vitiate the termination. As an initial matter, it far from clear that Alza acted in bad faith. Rather, it is undisputed that Alza modified the agreement twice, instead of terminating it, to give Innomed a chance to bring itself into compliance. Only after three years of periodic, if not constant, breaches of the agreement did Alza terminate it. And, even in the final moments, Alza was willing to give Innomed an additional 60 days to work out its problems. These acts are not the hallmark of bad faith.
Furthermore, even if Alza terminated for its own economic gain either due to an impending merger or because it believes it can find a third party who will actually pay for its wares, on the facts before me, Innomed will be hard pressed to show breach of a duty of good faith and fair dealing. Alza had the clear right under the contract to terminate the agreement. Eventually, it acted on this right. It is contrary to law and logic that Alza should now be required to maintain the contract, simply because it gave Innomed time to resolve its cash flow problems.
Thus, I find that Innomed is unlikely to prevail on this claim either.
II. Balancing of Hardships
Plaintiff could also succeed on its claim if it shows sufficiently serious questions going to the merits to make them a fair ground for litigation plus a balance of hardships tipping decidedly in its favor. However I find that plaintiff falls short of this standard as well. As is clear from the previous analysis, plaintiff has not presented sufficiently serious questions of law to warrant relief. Furthermore, although plaintiff will likely suffer a hardship if I do not grant the TRO, it is also clear
CONCLUSION
For the foregoing reasons, Innomed's application is denied. A hearing on Innomed's application for a preliminary injunction will be held on May 24, 2001 at 3:00 p.m. All papers from both sides must be filed by or before May 17, 2001, with a courtesy copy delivered directly to Chambers.