Bayer Cropscience LP v. Chemtura Corp., 2012 NCBC 40.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF DURHAM 12 CVS 3057
BAYER CROPSCIENCE LP, ) Plaintiff ) ) v. ) OPINION AND ORDER ON MOTION ) FOR PRELIMINARY INJUNCTION CHEMTURA CORPORATION, ) Defendant )
THIS CAUSE, designated a complex business case by Order of the Chief Justice
of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b)
(hereinafter, references to the North Carolina General Statutes will be to "G.S."), and
assigned to the undersigned Chief Superior Court Judge for Complex Business Cases,
is before the court for determination of Plaintiff Bayer CropScience LP's Motion for a
Preliminary Injunction ("Motion"), pursuant to Rule 65, North Carolina Rules of Civil
Procedure ("Rule(s)"); and
THE COURT, having considered the Motion, briefs in support of and in
opposition to the Motion, submissions and arguments of counsel and other appropriate
matters of record, CONCLUDES that the Motion should be GRANTED, for the reasons
stated herein.
Womble Carlyle Sandridge & Rice, LLP, by Pressly M. Millen, Esq. and Robert T. Numbers, II, Esq. for Plaintiff.
Kilpatrick Townsend & Stockton, LLP, by Gregg E. McDougal, Esq. and Alan D. McInnes, Esq. for Defendant.
THE COURT makes the following FINDINGS of FACT, only for the limited
purpose of determining the Motion: [1] Plaintiff Bayer CropScience LP ("Bayer") is a Delaware limited partnership
with its principal place of business in Durham County, North Carolina.1
[2] Defendant Chemtura Corporation ("Chemtura") is a Delaware corporation
with its principal place of business in Middlebury, Connecticut.2
[3] On or about March 31, 2008, Bayer and Chemtura entered into an
agreement entitled Second Amended and Restated Ipconazole Development and
Supply Agreement ("Chemtura Agreement").3 The initial term of the Chemtura
Agreement runs until June 20, 2015.4 However, either party can terminate the
agreement if the other party is in material breach and fails to cure such breach within
thirty days after being notified, with reasonable particularity, of the breach.5
[4] Under the Chemtura Agreement, Chemtura granted Bayer the exclusive
right to use the chemical Ipconazole6 to develop certain formulated products, notably
the Vortex Formulation ("Vortex").7 Vortex primarily was to be used as a seed treatment
on corn (including popcorn and sweet corn), cotton, sorghum, peanuts, sunflower,
vegetables and sugar beets in the United States.8 Bayer's Canadian affiliate also was
granted the right to use Ipconazole to develop a Canadian formula, similar to Vortex, as
a seed treatment on corn (including popcorn and sweet corn) in Canada.9
1 Compl. Inj. Relief ("Complaint") ¶ 1. 2 Id. ¶ 2. 3 Id. ¶ 5. 4 Chemtura Agreement § 1.1. The Chemtura Agreement could be renewed for additional one-year terms with consent of both parties. Id. 5 Id. § 12.1(a). 6 Ipconazole is a fungicide, applied to certain crop seeds to protect plants from soil and seed borne diseases. Compl. ¶ 6. 7 Chemtura and Bayer's predecessor-in-interest worked together to develop Vortex. The active ingredient used in Vortex is Ipconazole. Sutton Aff. 1. 8 Chemtura Agreement § 2.2. Chemtura obtained its rights in Ipconazole by entering into an exclusive agreement with Kureha Chemical Industry Co., Ltd., the supplier of Ipconazole. Sutton Aff. ¶ 3. 9 Chemtura Agreement § 2.2. [5] Chemtura's performance under the Chemtura Agreement is conditioned
on Bayer's satisfactory performance of a list of obligations, along with Bayer's obligation
to purchase a required annual quantity of Ipcanazole.10 The relevant portions of Bayer's
obligations under the Chemtura Agreement, for purposes of this Opinion and Order, are
reflected in sections 3.1(a) and (c), 9.4 and 16.1.11 These sections provide that:
3.1(a): Bayer shall use commercially reasonable efforts to develop the market potential for the use of [Ipconazole] for [Vortex] and for approved [new uses] on [crops] in the [United States and Canada].12
3.1(c): Bayer shall use commercially reasonable efforts to fully promote the sales and use of [Vortex] and approved [new uses] for crops in the [United States and Canada], by engaging in advertising and marketing programs.13
9.4: [Vortex] and any approved [new uses] shall be sold by Bayer and/or Bayer's [Canadian affiliate], as applicable, under their own labels and trademarks or trade names (including "Vortex") for [seed treatment use on crops in the United States and Canada.] Under no circumstances shall Bayer or Bayer's [Canadian affiliate] make any warranty, express or implied, to any person with respect to the [Ipconazole].14
16.1: . . . [T]his [Chemtura] Agreement shall not be transferred or assigned, by operation of law or otherwise, by Bayer without Chemtura's prior written consent.15
[6] As part of the Chemtura Agreement, Chemtura permitted Bayer to submit
Chemtura's data and information to the United States Environmental Protection Agency
("EPA") so that Bayer could receive the proper approval and registration needed to
10 See id. §§ 3.1, 6.1. 11 As discussed infra, sections 3.1(a) and (c), 9.4 and 16.1 were cited by Chemtura in a notice to Bayer setting forth Bayer's alleged default under the Chemtura Agreement. 12 Id. § 3.1(a). 13 Id. § 3.1(c). 14 Id. § 9.4. 15 Id. § 16.1. manufacture Vortex and apply it to certain crop seeds.16 Without Chemtura's data and
information, Bayer would not be able to manufacture and sell Vortex because Bayer
would not be able to receive EPA approval.17
[7] On or about April 7, 2008, Bayer entered into an agreement ("Monsanto
Agreement") with Monsanto Company ("Monsanto"), which, among other things,
produces corn seeds and treats its corn seed with fungicidal treatment.
[8] Pursuant to the terms of the Monsanto Agreement, Bayer granted
Monsanto the exclusive right to purchase Vortex for use as a seed treatment for
Monsanto's corn seeds.18 Notwithstanding the Monsanto Agreement, Bayer remained
obligated to Chemtura for performance of all the material terms of the Chemtura
Agreement.
[9] As part of a separate agreement entered into on May 26, 2009, Bayer
permitted Monsanto to obtain supplemental registration from the EPA for Vortex so that
Monsanto could develop and use its own trademarks for the sale of Vortex.19 However,
Bayer continued to sell Vortex to Monsanto for use on corn seed using Bayer's own
trademarks and trade names.20
16 Compl. ¶ 9. 17 May Aff. ¶¶ 8-10. The Federal Insecticide, Fungicide, and Rodenticide Act, as amended, 7 U.S.C. §§ 136 et seq., generally provides for the federal regulation of covered chemical products, including registration and labeling requirements necessary for the legal sale and use of such products in the United States. As mentioned above, without such registrations, Vortex, and other regulated products, may not be sold. 18 While negotiating the Monsanto Agreement, Monsanto informed Bayer that it required Bayer to grant Monsanto the exclusive right to purchase Vortex from Bayer with respect to its use on corn seed as a condition to entering into the Monsanto Agreement. Rick Turner Aff. ¶ 7. 19 Corn Seed Treatment Supplemental Registration Agreement ¶¶ B-C, § 2.5. 20 May Aff. ¶ 5. [10] Given the consolidated nature of the commercial corn seed industry,
increasing sales and market potential for a product such as Vortex is difficult.21 There is
evidence before the court that an exclusive agreement with Monsanto, which is the
largest corn seed producer in the United States, is likely to produce greater sales and
potential future growth opportunities for Vortex versus targeting sales to smaller corn
seed producers that did not include sales to Monsanto. Additionally, Bayer's contractual
relationship with Monsanto represents a source for potential growth regarding Vortex
with respect to other crop seeds.22
[11] Bayer and Monsanto published a news release dated April 8, 2008,
announcing the Monsanto Agreement.23 On April 24, 2008, Bayer and Chemtura
conducted a meeting. The meeting agenda listed the Monsanto Agreement as one of
the items to be discussed.24 At this meeting, Bayer provided Chemtura with an
overview of the Monsanto Agreement and explained the exclusive aspect of the
agreement.25
[12] On March 15, 2012, approximately four years after Bayer entered into the
Monsanto Agreement, Chemtura notified Bayer by letter ("Notice") that it believed Bayer
materially breached the Chemtura Agreement by entering into the Monsanto Agreement
and granting Monsanto the exclusive right to purchase Vortex in the United States for
21 The commercial corn seed market is dominated by Monsanto and Pioneer. Rick Turner Aff. ¶ 4. Roughly, Monsanto controls 35% of the United States market, with Pioneer controlling 34%. Id. Syngenta is less of a factor, controlling 7% of the same market. However, Syngenta produces its own fungicide for seed treatment, which it uses on its own corn seeds and provides it to Pioneer pursuant to a long-term agreement. Id. ¶ 5. 22 There is evidence that Bayer and Monsanto could expand their current contractual relationship to include the application of Vortex on Monsanto's cotton and soybean seeds. Mark Turner Aff. ¶¶ 6-7. 23 May Aff. ¶ 4. 24 Id. 25 Smith Aff., Ex. B. use as a seed treatment on corn.26 Specifically, the Notice stated that Bayer's exclusive
grant of rights to Monsanto violated sections 3.1(a), 3.1(c) and 9.4 of the Chemtura
Agreement.27 Further, the Notice stated that because Bayer transferred certain material
obligations to Monsanto, Bayer was also in breach of section 16.1 of the Chemtura
Agreement, which permits assignments of obligations only with Chemtura's prior written
consent.28 The above-referenced sections were the only sections that the Notice
referenced as a source for Bayer's alleged default.29
[13] In the Notice, Chemtura indicated its intent to terminate the Chemtura
Agreement, unless the alleged breach was cured within thirty days.30
[14] On April 12, 2012, Bayer responded to the Notice and informed Chemtura
that it had not manifested an intention to transfer its obligations under the Chemtura
Agreement to Monsanto or to any other party and contended that it was not in material
breach of the Chemtura Agreement.31
[15] On April 24, 2012, Chemtura rejected Bayer's explanation and stated that
it intended to terminate the Chemtura Agreement on April 30, 2012.32 Chemtura
indicated that it would cease selling Ipconazole to Bayer in an exclusive arrangement.33
Chemtura also demanded that Bayer either terminate its registration for Vortex with the
EPA or transfer the registration to Chemtura.34
26 Sutton Aff. ¶ 22, Ex. B. 27 Id., Ex. B. 28 Id. 29 See id. 30 Id. 31 Millen Aff., Ex. 5. 32 Id. 33 Id. 34 Id. [16] On April 30, 2012, Chemtura purportedly terminated the Chemtura
Agreement.35
[17] From the time the Chemtura Agreement was entered into until the time of
Chemtura's purported termination, Bayer purchased over $15 million worth of
Ipconazole from Chemtura.36 This sales volume represents a significant increase over
the amount of Ipconazole Chemtura sold in the years prior to the Chemtura
Agreement.37
[18] Losing its exclusive rights to sell Vortex in the United States and Canada,
as well as its EPA registration, would prevent Bayer from being able to perform its
contractual obligations to Monsanto.38 Such a loss would cause material monetary
harm to Bayer that would be difficult, if not impossible, for Bayer to quantify.39
[19] On May 10, 2012, Bayer filed its Complaint for Injunctive Relief alleging
the following claims for relief ("Claim(s)"): First Cause of Action – Breach of Contract
and Second Cause of Action – Declaratory Judgment. Bayer seeks preliminary
injunctive relief as a result of Chemtura's alleged unjustified, unilateral termination of the
Chemtura Agreement.
[20] The Motion has been briefed and argued and is ripe for determination.
BASED UPON the foregoing FINDINGS of FACT, the court reaches the
CONCLUSIONS of LAW reflected in the following discussion:
35 Id. 36 Mark Turner Aff. ¶ 3. 37 Id. ¶ 4. 38 May Aff. ¶¶ 9-10. 39 Id. Preliminary Injunction
[21] A preliminary injunction is an extraordinary measure that "should not be
lightly granted." Travenol Lab., Inc. v. Turner, 30 N.C. App. 686, 692 (1976). It is an
ancillary remedy that only will be issued if a moving party is able to show (a) a likelihood
of success on the merits of its case and (b) that it is likely to sustain irreparable loss
unless the injunction is issued; or if, in the opinion of the court, in weighing the
respective interests of the parties, issuance is necessary for the protection of the
moving party's rights during the course of litigation.40 A.E.P. Indus., Inc. v. McClure,
308 N.C. 393, 401 (1983). The burden is on the moving party to establish its right to a
preliminary injunction. Id.; Ridge Cmty. Investors, Inc. v. Berry, 293 N.C. 688, 701
(1977); Analog Devices, Inc. v. Michalski, 157 N.C. App. 462, 466 (2003); Pruitt v.
Williams, 25 N.C. App. 376, 379 (1975); Smith v. N.C. Motor Speedway, Inc., 1997
NCBC 5, ¶ 26 (N.C. Super. Ct. Nov. 12, 1997); see also G.S. 1-485.
Status Quo
[22] The parties dispute whether the Motion should be characterized as a
mandatory or prohibitory injunction. The distinction between a mandatory and
prohibitory injunction is an important one because a mandatory injunction is more rare
and generally disfavored as an interlocutory remedy. Roberts v. Madison Cnty.
40 Although Bayer has not yet filed a demand for arbitration, Bayer has indicated in its Complaint that it intends to do so with respect to all Claims alleged. It is proper for a court to enter an injunction pending arbitration if doing so would prevent one party from eviscerating the effectiveness of the arbitration. A pre-arbitration injunction would be proper if either the Federal Arbitration Act or North Carolina Revised Uniform Arbitration Act ("NCRUAA") controlled the parties' dispute. See Blumenthal v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 910 F.2d 1049, 1054 (2d Cir. 1990) (stating that federal policy favors entering an injunction if doing so would permit the parties to arbitrate disputes contemplated by their arbitration agreement); Scottish Re Life Corp. v. Transamerica Occidental Life Ins. Co., 184 N.C. App. 292, 297-98 (2007) (holding that the NCRUAA permits a court to enter provisional remedies, including injunctive relief – if the requirements for an injunction are met – before an arbitrator is appointed if doing so would preserve the effectiveness of the arbitration proceeding). Realtors Ass'n, 344 N.C. 394, 400 (1996); Bd. of Light & Water Comm'rs of Concord v.
Parkwood Sanitary Dist., 49 N.C. App. 421, 424 (1980). A preliminary injunction is a
measure taken by a court to preserve the status quo of the parties during litigation.
Triangle Leasing Co. v. McMahon, 327 N.C. 224, 227 (1990).
[23] Here, the parties operated under the Chemtura Agreement for nearly four
years before Chemtura decided to terminate the same on April 30, 2012. Chemtura
contends that the status quo is that the parties do not have an agreement. As such,
Chemtura argues that Bayer is seeking a mandatory injunction by forcing Chemtura to
resume performance of the Chemtura Agreement.41
[24] However, the status quo does not, as Chemtura would have it, "consist of
a photographic replication of the circumstances existing at the moment suit was filed,"
but rather the status quo is "the last peaceable uncontested status that existed before
the dispute arose." Mass. Mut. v. Associated Dry Goods, 786 F. Supp. 1403, 1427
(N.D. Ind. 1992). An "injunction is generally framed so as to restrain the defendant from
permitting his previous act to operate, or to restore conditions that existed before the
wrong complained of was committed." Anderson v. Waynesville, 203 N.C. 37, 46
(1932); see also Rauch Indus., Inc. v. Radko, No. 3:07-cv-197-C, 2007 U.S. Dist. LEXIS
79311, *19 (W.D.N.C. Oct. 25, 2007) (characterizing the status quo between the parties
as "the time that the allegedly unlawful acts complained of reasonably may be believed
to have occurred"). Adopting Chemtura's position regarding the status quo would
41 Chemtura argues that it is a basic tenet of contract law that a party is not obligated to perform a contract against its will and is free to breach an arm's-length contract. Def. Resp. Opp'n Pl. Mot. Prelim. Inj. 12. While this tenet is generally true, a party's decision to breach a contract and not perform is subject to limitation when a breach would cause irreparable harm to the non-breaching party. In such a case, the issuance of a preliminary injunction would limit the right of a party to breach an arm's-length contract. create an incentive for a party to breach an existing contract before the other party can
seek injunctive relief in an effort to alter the status quo and the nature of the injunctive
relief sought (i.e., mandatory relief rather than prohibitory relief).
[25] In the present case, Bayer's breach of contract Claim arises from
Chemtura's alleged wrongful termination of the Chemtura Agreement on April 30, 2012.
Subsequently, Bayer filed this civil action on May 10, 2012. The status quo between the
parties is the contractual relationship that existed for over four years before the dispute
arose. As such, maintaining the status quo would have Chemtura providing Ipconazole
to Bayer pursuant to the Chemtura Agreement. Consequently, Bayer is seeking an
injunction that is more appropriately characterized as a prohibitory injunction. In
substance, Bayer is seeking to prohibit Chemtura from wrongfully terminating the
Chemtura Agreement (i.e., prohibit Chemtura from disrupting the status quo during the
pendency of this litigation).
Likelihood of Success on the Merits of Plaintiff's Breach of Contract Claim
[26] Bayer alleges that Chemtura breached the Chemtura Agreement by
unilaterally and unjustifiably terminating the contract.
[27] In response, Chemtura contends that its termination of the Chemtura
Agreement was proper because Chemtura gave sufficient notice to Bayer that it was in
material breach of the Chemtura Agreement, and Bayer failed to cure within the
requisite time period.
[28] In determining whether Bayer is likely to succeed on the merits of its
breach of contract Claim, the court must determine whether Chemtura's termination of
the Chemtura Agreement was proper. In doing so, the court must examine (a) whether the Notice was sufficient and (b) whether Bayer was in material breach of the Chemtura
Agreement, which would provide proper grounds for Chemtura to terminate the contract.
[29] As an initial matter, the Chemtura Agreement contains a choice of law
clause stating that the contract is governed by New York law,42 and the parties do not
dispute that New York law should apply to Bayer's breach of contract Claim. As such,
the court will apply New York law to the merits of said Claim.
[30] The Chemtura Agreement provides specific circumstances that allow the
parties to terminate the agreement prior to its initial June 20, 2015 expiration date. The
Chemtura Agreement states that it may be terminated by a party "if the other party is in
material breach of [the Chemtura Agreement] and fails to cure such material breach
within thirty (30) days after notice . . . setting forth the details thereof with reasonable
particularity has been given to such other party."43 Essentially, the Chemtura
Agreement contemplates its termination if a party has substantive grounds to terminate
and takes the proper procedural steps to give the other party notice.
[31] Chemtura provided the Notice to Bayer, contending that Bayer had
materially breached the Chemtura Agreement by entering into the Monsanto
Agreement. The Notice asserted that the Monsanto Agreement constituted (a) an
improper assignment of Bayer's obligations under the Chemtura Agreement, without
Chemtura's written consent, (b) a violation of the label/trademark clause and (c) a
violation of the requirement that Bayer use commercially reasonable efforts to develop
the market potential and fully promote the sale and use of Vortex.44
42 Chemtura Agreement § 17.1. 43 Id. § 12.1(a)(i). 44 Millen Aff., Ex. 5 at 1-2. The Notice had four substantive paragraphs, each of which specifically took issue with the Monsanto Agreement. The Notice referenced four specific provisions in the Chemtura [32] Bayer, in its briefs and during oral argument, did not raise any procedural
issues with respect to the Notice. It appears from the letters exchanged between
Chemtura and Bayer that Chemtura gave Bayer notice with reasonable particularity and
the proper amount of time to cure such alleged breaches with respect to the three
grounds for breach set forth in the Notice.45 Because Chemtura took the proper
procedural steps in terminating the Chemtura Agreement, the court must decide
whether Chemtura's termination of the Chemtura Agreement was substantively proper.
[33] Chemtura argues that Bayer assigned a part of the Chemtura Agreement
without Chemtura's consent. The Chemtura Agreement provides, in pertinent part, that
"this Agreement shall not be transferred or assigned, by operation of law or otherwise,
by Bayer without Chemtura's prior written consent."46
[34] In order to constitute an assignment under New York law, the purported
assignment must result in a complete and unqualified transfer of the assignor's property,
interest or right. Miller v. Wells Fargo Bank Int'l Corp., 540 F.2d 548, 558 (2d Cir. 1976);
Mele v. Travers, 293 A.D.2d 950, 951 (N.Y. App. Div. 3d Dep't 2002) (citation omitted).
"An assignment at law contemplates a completed transfer of the entire interest of the
Agreement that were allegedly breached: sections 16.1 (concerning assignments), 9.4 (concerning labeling) and 3.1(a) and (c) (concerning commercially reasonable efforts to develop the market and promotion of sales and use of Vortex). Chemtura's brief and oral argument in opposition to the Motion raise several new factual issues concerning Bayer's performance under the Chemtura Agreement. These newly alleged breaches were not included in the Notice to Bayer. The Chemtura Agreement, however, explicitly provides that a party may only terminate the contract for material breaches as to which notice is given with reasonable particularity so as to give the other party an opportunity to cure. Regarding these newly alleged breaches, Chemtura gave Bayer no notice and no opportunity to cure. Consequently, the newly alleged breaches cannot support Chemtura's termination of the Chemtura Agreement, and the court will only look to the issues raised by Chemtura in the Notice to determine whether Chemtura's termination of the Chemtura Agreement was proper. 45 Chemtura sent the Notice on March 15, 2012. On April 12, 2012, Bayer responded, denying Chemtura's allegations that a breach had occurred. On April 24, 2012, forty days after giving notice, Chemtura notified Bayer that it was terminating the Chemtura Agreement, effective April 30, 2012, as a result of Bayer's failure to cure. Millen Aff., Ex. 5. 46 Chemtura Agreement § 16.1. assignor in the particular subject of assignment, whereby the assignor is divested of all
control over the thing assigned." Coastal Commercial Corp. v. Samuel Kosoff & Sons,
Inc., 10 A.D.2d 372, 376 (N.Y. App. Div. 4th Dep't 1960).
[35] Bayer contends that the Monsanto Agreement does not constitute an
assignment of its obligations to Chemtura, but it is merely a standard supply agreement
whereby Bayer sells Vortex to Monsanto for use on corn seed. Bayer further contends
that due to the consolidation that exists within the commercial corn seed industry,
entering into an exclusive agreement to sell Vortex to Monsanto was the best option
available to promote the sale of the product.47
[36] Bayer, even after entering into the Monsanto Agreement, remained
obligated to Chemtura to purchase a certain amount of Ipconazole for corn seed and
perform all other obligations as required by Article III of the Chemtura Agreement,
entitled "Bayer's Obligations." The court is persuaded that the Monsanto Agreement
was not an assignment of Bayer's obligations in that Bayer, and not Monsanto, was the
party that continued to purchase and pay for Ipconazole from Chemtura. Additionally,
the Chemtura Agreement and Monsanto Agreement contain different terms, obligations
and conditions. See 971 Madison Ave. Corp. v. Complex Assocs., 90 A.D.2d 758, 758-
59 (N.Y. App. Div. 1st Dep't 1982) (finding no assignment where the original contract
and purported assignment contained markedly different terms and conditions).
[37] Here, the Monsanto Agreement's initial term expired on August 31, 2013,
nearly two years before the Chemtura Agreement was set to expire. The Chemtura
Agreement and Monsanto Agreement also use a different calculus to determine
purchase quantities and price. Furthermore, the Chemtura Agreement imposes 47 Turner Aff. ¶¶ 6-7. numerous obligations on Bayer, none of which are referenced in the Monsanto
Agreement. These differentiating terms and conditions of the agreements are evidence
that the Monsanto Agreement is a sales contract, rather than an assignment.
[38] There is no evidence in the record that Bayer manifested an intent to
transfer its obligations under the Chemtura Agreement, and it appears that Bayer
remains the primary obligor with respect to all portions of the Chemtura Agreement.
Moreover, the court is unable to conclude at this preliminary stage that Bayer's decision
to enter into the Monsanto Agreement was not a commercially reasonable effort to
develop the market for and promote the sale of Vortex. As discussed, evidence is
before the court that entering into the Monsanto Agreement, even on exclusive terms,
may have lead to greater sales of Vortex than if Bayer sold to smaller seed producers
that did not include Monsanto.48
[39] Finally, the court is unable to conclude that Bayer violated the Chemtura
Agreement's provisions dealing with labeling. In pertinent part, the Chemtura
Agreement provides that Vortex "shall be sold by Bayer . . . under [its] own labels and
trademarks or trade names. . . ."49 Under the Monsanto Agreement, Bayer sells Vortex
to Monsanto under its own labels and trademarks or trade names.50 Accordingly, it is
unclear at this preliminary stage that Bayer has materially breached the
labeling/trademark provisions of the Chemtura Agreement.
[40] Therefore, based on the foregoing, the court CONCLUDES that Bayer has
shown a likelihood of success with regard to the issues of (a) whether Chemtura's
termination of the Chemtura Agreement on April 30, 2012, was improper and (b)
48 Rick Turner Aff. ¶¶ 3-7. 49 Chemtura Agreement § 9.4. 50 May Aff. ¶ 5. whether Bayer will prevail on the merits of its breach of contract Claim against
Chemtura.
Irreparable Harm
[41] Bayer contends that if Chemtura is permitted to terminate the Chemtura
Agreement and stop providing Ipconazole, Bayer will be unable to (a) maintain its
registration for Vortex with the EPA, (b) fulfill its contractual obligations to Monsanto
under the Monsanto Agreement and (c) maintain customer goodwill, market share and
its competitive position in the marketplace. Bayer argues that the potential injury to it by
Chemtura's actions is material, indeterminate and irreparable should Chemtura
terminate the Chemtura Agreement.
[42] The indeterminate nature of damages may constitute irreparable harm.
A.E.P. Indus., 308 N.C. at 406-07 ("It is a basic principle of contract law that one factor
used in determining the adequacy of a remedy at law for money damages is the
difficulty and uncertainty in determining the amount of damages to be awarded for
defendant's breach."). While not controlling, North Carolina federal courts have ruled
that harms such as the loss of "customer goodwill" and "competitive positions, including
threatened loss of market share and threatened loss of existing and potential
customers" are the types of injuries that satisfy the irreparable harm requirement. R.J.
Reynolds Tobacco Co. v. Mkt. Basket Food Stores, Inc., No. 5:05-cv-253-V, 2007 U.S.
Dist. LEXIS 6737, *34-35 (W.D.N.C. Jan. 30, 2007) (citing R.J. Reynolds Tobacco Co.
v. Phillip Morris Inc., 60 F. Supp. 2d 502, 509 (M.D.N.C. 1999)); Rauch Indus., 2007
U.S. Dist. LEXIS 79311, at *5 (citing Multi-Channel TV Cable Co. v. Charlottesville
Quality Cable Operating Co., 22 F.3d 546, 552 (4th Cir. 1994)). As recognized in those cases, these harms are not the type that a damages award at the end of trial would
adequately cure. Rauch Indus., 2007 U.S. Dist. LEXIS 79311, at *5. Further, this court
previously has recognized that lost goodwill and future profits51 under certain
circumstances may constitute irreparable harm for purposes of Rule 65. GoRhinoGo,
LLC v. Lewis, 2011 NCBC 38, ¶ 39 (N.C. Super. Ct. Sept. 29, 2011) (citing Winnfield
Food Sys., Inc. v. Hardees Food Sys., Inc., No. 4:95-cv-5402 (M.D.N.C. Aug. 8, 1996)).
[43] Here, Bayer has demonstrated the threat of irreparable harm in that
Chemtura's termination of the Chemtura Agreement would result in Bayer being unable
to (a) maintain its registration for Vortex with the EPA, (b) fulfill its contractual
obligations to Monsanto under the Monsanto Agreement and (c) maintain customer
goodwill, market share and its competitive position in the marketplace.52 Accordingly,
Bayer has carried its burden of proof that it will be irreparably injured if an injunction is
not issued.
Weighing the Respective Interests
[44] As discussed above, Bayer contends that it will be materially harmed if
Chemtura stops performing under the Chemtura Agreement; meanwhile, Chemtura
argues that it will be more significantly harmed if it is forced to continue performing
under the Chemtura Agreement.
51 The court acknowledges that the loss of future profits alone may not be sufficient to constitute irreparable harm. Indeed, loss of prospective profits may be a measure of contract damages. Mosely & Mosely Builders, Inc. v. Landin Ltd., 87 N.C. App. 438, 446-47 (1987). The availability and sufficiency of such monetary damages precludes an award of injunctive relief. See Bd. of Light, 49 N.C. App. at 423 (recognizing that when "there is a full, complete, and adequate remedy at law, the equitable remedy of an injunction will not lie"). However, the court concludes that the threatened loss of future profits under the circumstances of this case, in combination with the various other losses alleged by Bayer, constitutes evidence of irreparable harm. 52 May Aff. ¶¶ 9-10. [45] As reflected above, if Chemtura were allowed to cease performing,
Bayer's potential damages, if it prevails at arbitration, would be significant and largely
incalculable. On the other hand, if Chemtura continues performance, it would be paid in
due course by Bayer for sales of Ipconazole. If Chemtura ultimately prevails at
arbitration, then its contended damages – occasioned by lower sales and smaller
market share than it would desire – would be mitigated by the Ipconazole sales,
especially if Bayer were to maintain Ipconazole purchases at volumes anticipated by the
Chemtura Agreement.53
[46] After weighing the respective interests of the parties, the court concludes
that a preliminary injunction requiring continued sale of Ipconazole under the Chemtura
Agreement pending final adjudication of this matter is likely to cause Chemtura
materially less damage or injury than the harm faced by Bayer should the Chemtura
Agreement be terminated now.
Security
[47] Rule 65(c) requires that the granting of a preliminary injunction shall be
conditioned upon the giving of security by the applicant in a sum determined by the
court to be proper for the payment of costs and damages that may be suffered by a
party ultimately determined to have been wrongfully enjoined or restrained.
[48] The parties dispute the amount of the bond that should be required as
security if a preliminary injunction is issued. Chemtura contends that if it is forced to
continue performance of the Chemtura Agreement, it will suffer an annual loss in excess
53 Equity dictates that if a preliminary injunction is issued with regard to Ipconazole sales, Bayer also should perform fully under the Chemtura Agreement. It would be fundamentally inequitable for Bayer to receive Ipconazole from Chemtura without Bayer being compelled to perform its own obligations under the Chemtura Agreement. of $11 million. Chemtura requests that the bond amount be sufficient to cover its
anticipated losses should Chemtura be required to continue performing under the
Chemtura Agreement. To the contrary, Bayer contends that it should only be required
to post a bond that amounts to Bayer's annual sales of Vortex, which is approximately
$1.5 million. However, Chemtura's contended damages, should it ultimately prevail on
the merits of this matter, are based upon damages contentions substantially beyond the
amount of annual sales by it to Bayer.
[49] Accordingly, at this time, the court concludes that a posting by Bayer of
security in the amount of $3 million would be reasonable and appropriate as a condition
of granting the preliminary injunctive relief sought by the Motion. However, the security
requirement is subject to an increase or reduction in amount, depending on the parties'
submissions on this issue, which will be complete by Friday, July 20, 2012. The court
will carefully consider the parties' submissions, and at a later time will determine
whether the amount of security should be modified.
NOW THEREFORE, based on the foregoing FINDINGS of FACT and
CONCLUSIONS of LAW, it hereby is ORDERED that:
[50] Plaintiff Bayer CropScience LP's Motion for a Preliminary Injunction is
GRANTED.
[51] Effective upon the date of this Opinion and Order, and until final resolution
of this civil action or until otherwise ordered by this court, Chemtura and its officers,
agents, servants, employees, attorneys and those persons in active concert or
participation with Chemtura who receive actual notice of this Opinion and Order are (a)
RESTRAINED, ENJOINED and FORBIDDEN from failing to comply with the terms of the Chemtura Agreement, and (b) ORDERED to sell Ipconazole to Bayer as provided in
the Chemtura Agreement.
[52] Further, effective upon the date of this Opinion and Order, and until final
resolution of this civil action or until otherwise ordered by this court, Bayer and its
officers, agents, servants, employees, attorneys and those persons in active concert or
participation with Bayer who receive actual notice of this Opinion and Order are (a)
RESTRAINED, ENJOINED and FORBIDDEN from failing to comply with the terms of
the Chemtura Agreement and (b) ORDERED to purchase and pay for Ipconazole from
Chemtura at a volume no lower on an annual basis than is contemplated by section 6.1
of the Chemtura Agreement.
[53] Pursuant to the provisions of Rule 65(c), and as a condition of this Opinion
and Order, on or before July 17, 2012, at 5:00 p.m., Bayer shall post security
("Security") in the amount of THREE MILLION DOLLARS ($3,000,000). Said Security
shall be in the form of a surety bond or other undertaking satisfactory to the Clerk of
Superior Court of Durham County, for the payment of such costs and damages as may
be incurred or suffered by Chemtura if it is found to have been wrongfully enjoined or
restrained by this Opinion and Order.
[54] This Opinion and Order is only intended to preserve the status quo
between Bayer and Chemtura during the pendency of this litigation; except as
specifically ordered herein, this Opinion and Order shall not be construed to affect the
rights, obligations or liabilities of either party under the Chemtura Agreement.
[55] Except as granted by the terms of this Opinion and Order, the Motion is
DENIED. This the 13th day of July, 2012, at 4:59 p.m.