Swift Beef Company v. Alex Lee, Inc.

• Court: Court of Appeals for the Fourth Circuit
• Decided: January 17, 2019
• Docket: 17-2339
• Status: Unpublished

Opinion

UNPUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 17-2339

SWIFT BEEF COMPANY,

Plaintiff - Appellee,

v.

ALEX LEE, INC.,

Defendant - Appellant.

Appeal from the United States District Court for the Western District of North Carolina, at Statesville. Max O. Cogburn, Jr., District Judge. (5:17-cv-00176-MOC-DSC)

Argued: October 30, 2018 Decided: January 17, 2019

Before DUNCAN, KEENAN, and DIAZ, Circuit Judges.

Vacated and remanded by unpublished per curiam opinion.

ARGUED: Mark W. Kinghorn, MCGUIREWOODS, LLP, Charlotte, North Carolina, for Appellant. Clayton E. Bailey, BAILEY BRAUER PLLC, Dallas, Texas, for Appellee. ON BRIEF: Benjamin L. Stewart, BAILEY BRAUER PLLC, Dallas, Texas; Thomas G. Hooper, NELSON MULLINS RILEY & SCARBOROUGH LLP, Charlotte, North Carolina, for Appellee.

Unpublished opinions are not binding precedent in this circuit. PER CURIAM:

In this appeal, we review the district court’s award of a preliminary injunction to a

commercial tenant in a lawsuit brought by the tenant against its landlord. The court

temporarily enjoined the landlord from terminating its lease with the tenant and from

initiating eviction proceedings in the state court during the pendency of the action in the

district court. After reviewing the record, we hold that the court abused its discretion in

granting this relief, because the court failed to consider the full scope of the landlord’s

rights of termination under the lease. Accordingly, we vacate the district court’s

judgment and remand for further proceedings.

I.

Swift Beef Co. (Swift Beef), the tenant in this case, is a meat company that

produces “case ready” meat, which is packaged and sold in grocery stores. Alex Lee,

Inc. (Alex Lee), the landlord, operates a food distribution company and owns a meat

processing facility in Lenoir, North Carolina. Alex Lee agreed to lease this facility to

Swift Beef and, in a separate agreement, Swift Beef agreed to supply Alex Lee with

certain meat products. The parties accordingly executed a lease agreement (the lease)

and a separate purchase agreement (the purchase agreement) detailing the parties’ rights

and obligations.

The lease sets forth two different procedures for termination of the lease

obligations. Section 18.2 of the lease states:

2 In the event of [Swift Beef’s] Default, [Alex Lee], at its option, may, unless the [default] is cured within [30] days after written notice of [default] is delivered to [Swift Beef], immediately terminate this Lease and all of the rights of occupancy . . . and then [Alex Lee] shall have the right to enter the Property and remove all persons and property from the Property. (Emphasis added).

Thus, to terminate the lease under Section 18.2, Alex Lee was required to provide to

Swift Beef written notice and a 30-day period to cure any default. 1

A second termination procedure in the lease, contained in Section 18.3, does not

require written notice of default or an opportunity to cure:

Notwithstanding anything to the contrary contained herein, if [Swift Beef] fails, refuses, or is unable to produce Products for [Alex Lee] in accordance with Section 3 of the Purchase Agreement, [Alex Lee] may, in its sole discretion, immediately terminate this Lease and all of the rights of occupancy of [Swift Beef] under this Lease effective immediately upon the delivery of written notice (or effective at such time as otherwise set forth in the written notice) to [Swift Beef]. (Emphasis added).

Under the plain language of Section 18.3, Alex Lee could “immediately terminate” the

lease if Swift Beef failed to comply with Section 3 of the purchase agreement. That

section of the purchase agreement set forth the pricing structure for the meat products

supplied to Alex Lee, requiring Swift Beef to “use commercially reasonable efforts to

produce the Product efficiently and at competitive cost.”

Over the course of the parties’ relationship, several disputes arose. Alex Lee

contended that Swift Beef failed to fulfill an adequate percentage of Alex Lee’s orders,

produced substandard products, and overcharged Alex Lee for those products. On its

1 As defined by the lease, a default included any breach of obligations in the lease or the purchase agreement.

3 part, Swift Beef asserted, among other things, that Alex Lee continually decreased its

orders of meat products, that Alex Lee failed to pay for certain products, and that Alex

Lee withheld its consent for Swift Beef to install improvements at the facility.

Alex Lee’s president ultimately informed Swift Beef’s representative that “it will

be best” for both parties to terminate the lease. After some discussions about a possible

sale of the facility to Swift Beef, Alex Lee’s counsel sent a letter to Swift Beef’s counsel,

accusing Swift Beef of failing to comply with Section 3 of the purchase agreement and

citing Section 18.3 as authorizing an immediate termination of the lease.

Swift Beef later filed suit against Alex Lee in the district court, alleging claims for

breach of contract and for anticipatory breach of contract. Swift Beef asked the court to

order both declaratory and injunctive relief. Relevant to this appeal, Swift Beef’s claim

of anticipatory breach was based on the assertion that Alex Lee’s threat to terminate the

lease violated Section 18.2, because Alex Lee had not provided Swift Beef notice of

default and an opportunity to cure.

Swift Beef later filed a motion for a preliminary injunction, seeking to prevent

Alex Lee from terminating the lease and from initiating eviction proceedings in the state

court. 2 After conducting a hearing and reviewing the evidence, the district court granted

Swift Beef’s motion. In its decision, the court addressed whether Swift Beef had satisfied

the four factors for injunctive relief set forth in Winter v. Natural Resources Defense

2 Swift Beef originally filed a motion for a temporary restraining order, which later was converted to a motion for a preliminary injunction.

4 Council, Inc., 555 U.S. 7, 20 (2008). 3 Those factors require a plaintiff seeking a

preliminary injunction to show that the plaintiff is likely to succeed on the merits of its

claim, that the plaintiff will suffer irreparable harm without injunctive relief, that the

balance of equities favors the plaintiff, and that injunctive relief is in the public interest.

Id.

In its decision, the district court first observed that Alex Lee presented evidence

that “cast[] serious doubt on whether” Swift Beef fully had upheld its obligations under

the parties’ agreements, including whether Swift Beef used “commercially reasonable

efforts” to produce products efficiently and at competitive prices. However, the court

determined that this evidence of Swift Beef’s potential breaches was “not relevant” to the

question whether Swift Beef could succeed on its claim that Alex Lee committed an

anticipatory breach of contract. The court concluded that under Section 18.2, Alex Lee

was required, but failed, to provide notice of default and a 30-day opportunity to cure

before acting to terminate the lease. Accordingly, the court held that Swift Beef was

likely to succeed on its claim of anticipatory breach. Notably, however, the court did not

refer to Section 18.3 in its decision.

The district court also concluded that the remaining Winter factors favored Swift

Beef. Thus, the court awarded Swift Beef a preliminary injunction prohibiting Alex Lee

during the pendency of the lawsuit from acting in any manner to evict Swift Beef from

the meat processing facility. Alex Lee timely filed this appeal.

3 The district court issued an initial opinion, and then revised its decision. We discuss only the amended decision here.

5 II.

We have jurisdiction under 28 U.S.C. § 1292(a)(1) to consider this interlocutory

appeal from an award of a preliminary injunction. In reviewing the district court’s

injunction, we employ an abuse-of-discretion standard, examining the court’s legal

conclusions de novo and the court’s factual findings for clear error. Pashby v. Delia, 709

F.3d 307, 319 (4th Cir. 2013).

Alex Lee argues that the district court incorrectly concluded that Swift Beef was

likely to succeed on the merits of its anticipatory breach claim, because the court failed to

consider the provisions of Section 18.3. In response, Swift Beef maintains that the

district court correctly held that Section 18.2 was the dispositive lease provision, which

requires Alex Lee to provide notice of default and an opportunity to cure. Swift Beef

further asserts that the district court implicitly concluded that Section 18.3 was

inapplicable, based on the court’s view of the factual record. We find no merit in Swift

Beef’s position.

A preliminary injunction is an extraordinary remedy typically awarded to protect

the status quo and to prevent irreparable harm while a suit is pending. Di Biase v. SPX

Corp., 872 F.3d 224, 230 (4th Cir. 2017). As described above, a party seeking a

preliminary injunction must show: (1) a likelihood of success on the merits of the claims

presented; (2) that irreparable harm is likely absent injunctive relief; (3) that the balance

of equities tips in its favor; and (4) that an injunction is in the public interest. Winter, 555

U.S. at 20. We focus our present analysis on the first Winter factor, namely, whether

6 Swift Beef made a “clear showing” that it was likely to succeed on its claim that Alex

Lee anticipatorily breached the lease by seeking to terminate it without notice. See Di

Biase, 872 F.3d at 230 (citing Winter, 555 U.S. at 22).

Under North Carolina law, which governs interpretation of the lease, a “[b]reach

of contract occurs when a party fails to perform a contractual duty” that has become

absolute. 4 Millis Constr. Co. v. Fairfield Sapphire Valley, Inc., 358 S.E.2d 566, 569

(N.C. Ct. App. 1987). An anticipatory breach occurs when a breach is “committed before

there is a present duty of performance,” and occurs when a party’s conduct evinces an

“intention to refuse performance in the future.” Cook v. Lawson, 164 S.E.2d 29, 32 (N.C.

Ct. App. 1968) (citation omitted).

The district court’s conclusion that Swift Beef likely would succeed on its claim of

anticipatory breach rested entirely on the court’s finding that Alex Lee failed to comply

with the provisions of Section 18.2 requiring notice of default and an opportunity to cure.

Notably, however, the court did not consider whether Section 18.3 was applicable, as

evidenced by the court’s failure to reference that provision in its decision.

As previously discussed, Section 18.3 permits immediate termination of the lease

if Swift Beef “fails, refuses, or is unable to produce” meat products in accordance with

Section 3 of the purchase agreement. That section of the purchase agreement requires

4 Because this case arose under the court’s diversity jurisdiction, we apply the law of the state where the lease was executed, namely, North Carolina. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941); see Fast v. Gulley, 155 S.E.2d 507, 509-10 (N.C. 1967).

7 that Swift Beef “use commercially reasonable efforts to produce the Product efficiently

and at competitive cost.”

Although the district court did not cite Section 3 of the purchase agreement, the

court referenced nearly identical language from that provision, finding that Alex Lee

presented evidence “cast[ing] serious doubt” on whether Swift Beef used “commercially

reasonable efforts to produce Case Ready goods efficiently and at competitive prices.”

The court concluded nevertheless that any non-compliance by Swift Beef with the

purchase agreement was not relevant to the issue whether Alex Lee validly terminated the

lease under Section 18.2, because Alex Lee had failed to give the required notice and

opportunity to cure.

We disagree with the district court’s analysis. The disputed factual issue of Swift

Beef’s performance under the purchase agreement was directly relevant to the question

whether Alex Lee could rely on Section 18.3 in terminating the lease without notice, and

whether Swift Beef could succeed on the merits of its anticipatory breach claim. Thus,

both the disputed facts at issue and the differing termination provisions of the lease

necessitated consideration of Section 18.3 before any injunctive relief could be awarded

in the case.

Accordingly, we hold that the district court abused its discretion in awarding

preliminary injunctive relief without considering the applicability of Section 18.3. In the

absence of such review, Swift Beef failed to make a clear showing of likely success on

the merits of its anticipatory breach claim. And, based on our holding that Swift Beef

failed to satisfy the first Winter factor, we need not address the remaining Winter factors.

8 See Pashby, 709 F.3d at 320 (explaining that a plaintiff seeking a preliminary injunction

must satisfy each Winter factor).

III.

For these reasons, we vacate the district court’s preliminary injunction prohibiting

Alex Lee from terminating the lease and from initiating eviction proceedings. We

remand the case to the district court for further proceedings.

VACATED AND REMANDED