The opinion of the court was delivered by: Judge Joan H. Lefkow
Wilbert of Birmingham, LLC ("WOB") originally filed an action against Wilbert Funeral Services, Inc. ("Wilbert") in the United States District Court for the Northern District of Alabama, alleging that Wilbert improperly terminated the parties' licensing agreement, which granted WOB the right to use Wilbert's intellectual property. Pursuant to a forum-selection clause in the licensing agreement, Wilbert filed a motion to transfer venue to the Northern District of Illinois and, as a result, WOB voluntarily dismissed the action. Subsequently, Wilbert filed a motion in this court to compel arbitration of the dispute and to request a temporary restraining order and a preliminary injunction against WOB. Wilbert seeks injunctive relief to prevent WOB from continuing to manufacture, distribute, service, market, and sell products using Wilbert's intellectual property. WOB responded by filing its own motion for a temporary restraining order and a preliminary injunction, requesting that the court prevent Wilbert from impairing WOB's use of Wilbert's intellectual property. WOB agreed with Wilbert that the merits of the dispute should be resolved in arbitration. On October 9, 2009, this court held a hearing on the parties' cross motions for injunctive relief. Based on the evidence presented at the hearing and the parties' written submissions, the court denies Wilbert's motion [#5] and grants WOB's motion [#12].
Wilbert is an Illinois corporation that supplies components such as molds, adhesives, and vault liners that are used in the process of burial vault manufacturing to a national network of licensees. WOB is an Alabama corporation and one such licensee. WOB's relationship with Wilbert is governed by an Intellectual Property and License Agreement ("the Agreement"), which authorizes WOB to use Wilbert's intellectual property until August 31, 2015, provided that WOB adheres to the terms of the Agreement. See Joint Ex. 1. Paragraph 6(a) of the Agreement grants Wilbert the right to set manufacturing standards and quality control measures to be implemented in conjunction with WOB's use of Wilbert's intellectual property. Id. Paragraph 11 specifically requires that WOB abide by these standards. Id.
Paragraph 16(d) of the Agreement provides that Wilbert may terminate the Agreement "[t]hirty (30) days after written notice . . . upon the violation of, or failure to satisfy, the obligations of any other provision of this Agreement, unless cured within such 30-day period." Id. It further states that
"[u]pon an Event of Default, this Agreement shall terminate without further notice to [WOB] effective immediately upon the expiration of the notice period if any . . . provided, however, that [WOB] will have no right to cure a default when other defaults of a similar nature in the same location (as to which written notice has been given by [Wilbert]) have occurred . . . at least three (3) times within the prior twenty-four (24) months and which individually or in the aggregate are material."
The parties' dispute centers around the applicability of Paragraph 16(d) to the facts of the instant case. They agree that the paragraph allows Wilbert to terminate the Agreement in the event of three material defaults within a two-year period and further agree that WOB was found to be in default twice in 2009, once in January and once in February. They disagree, however, as to whether WOB was found to be in default a third time on May 19, 2009, and as to whether any of the defaults was material. They further disagree as to the procedure required by Paragraph 16(d) for a valid termination.
I. First and Second Defaults
On January 20, 2009, Bobby Morgan ("Morgan"), a field representative for Wilbert, conducted a compliance inspection of WOB's facilities, which, according to Morgan, revealed four material default issues that WOB needed to address. After his inspection, Morgan spoke with Marvin Lands ("Lands"), WOB's co-owner, about the alleged default issues. Lands testified that he did not agree with Morgan's characterization of the issues as default issues, but that he did not articulate his disagreement because he "never argued with [Morgan] about anything" and because if "[Lands] question[s] [Morgan's] judgment, he will -- he will argue with [Lands] very hard and very angry." Deposition of Marvin Lands, 27:5-6, 28:5-7, Oct. 15, 2006 (hereinafter "Lands Dep."). Nevertheless, Lands testified that he believed Morgan's inspection was faulty. Id. 26:13-27:6. Specifically, he testified that Morgan inspected products at WOB's manufacturing facility instead of its storage facility, and as a result, that Morgan inspected unfinished products that WOB would never have sent to its customers. Id. 26:13-21. According to Lands, WOB manufactures products in one location (the manufacturing facility) and then transports finished products to another location (the storage facility), where WOB checks the products for quality and discards defective products. Id. 22:16-23:21. Lands testified that the faulty products giving rise to Morgan's default findings would not have passed WOB's own inspection and therefore would have been discarded before the shipping process began. Id. 29:10-30:5.
After his visit, Morgan drafted a report that detailed his findings, indicated that WOB was not in compliance with Wilbert's manufacturing standards, and identified the four default issues that WOB needed to address. On January 28, 2009, Wilbert sent WOB a letter titled "License Agreement 1st Default," along with a copy of Morgan's report and an official notice of default. The letter stated that Morgan's inspection "revealed numerous violations and evidence of non-compliance." Joint Ex. 2B. The notice stated that WOB was, at the time of the January 20, 2009 inspection, "in default under [the Agreement] between [WOB] and Wilbert" and identified specific terms of the Agreement that WOB allegedly violated. Id.
On February 25, 2009, Morgan conducted a second compliance inspection of WOB's facilities, which, according to Morgan, again revealed four material default issues that WOB needed to address. Lands again disagrees that these issues were material defaults, if defaults at all. Indeed, he testified that, as in January, Morgan inspected products at WOB's manufacturing facility instead of its storage facility. Lands Dep. 38:11-39:1, 47:15-19. He further testified that Morgan's inspection of unfinished products was a recurring problem. Id. 47:15-22.
After Morgan's February visit, he again drafted a report that detailed his findings, indicated that WOB was not in compliance with Wilbert's manufacturing standards, and identified four "default issues" that WOB needed to address. On March 3, 2009, Wilbert sent WOB a letter titled "License Agreement 2nd Default," along with a copy of Morgan's report and an official notice of default. The letter stated that Morgan's inspection again "revealed numerous violations and evidence of non-compliance," reminded WOB that it was "still operating [its] facility in a severe default condition from [its] January 22, 2009 inspection" and further stated that WOB's "licensee agreement [would] be terminated if violations [were] not corrected by March 26, 2009." Joint Ex. 3B. The notice stated that WOB was, at the time of the February 25, 2009 inspection, "in default under [the Agreement] between [WOB] and Wilbert," and identified specific terms of the Agreement that WOB allegedly violated. Id.
On March 27, 2009, Morgan, in addition to the President of Wilbert, the Vice President of Operations for Wilbert, and the Executive Vice President of Wilbert, conducted a third compliance inspection of WOB's facilities. Morgan's report from this inspection, which Wilbert sent to WOB, revealed that WOB had cured the defaults that existed in January and February. Joint Ex. 4. It also stated that WOB was "on a Two (2) year probationary period from [the March 27, 2009] visit" and that "failure to follow through, and maintain the progress of improvement will result in [WOB's] license being TERMINATED." Id.
Morgan again visited WOB's facilities on May 19, 2009. The parties disagree, however, as to whether Morgan performed a compliance inspection on this date. Wilbert argues that Morgan performed a compliance inspection and that the inspection revealed several default issues, all of which were material. WOB argues that Morgan only made a casual visit, that he did not perform an inspection, ...