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Fellowes, Inc. v. Changzhou Xinrui Fellowes Office Equipment Co. Ltd. A/K/A Fellowes

August 16, 2012

FELLOWES, INC. PLAINTIFF,
v.
CHANGZHOU XINRUI FELLOWES OFFICE EQUIPMENT CO. LTD. A/K/A FELLOWES MANUFACTURING (CHANGZOU) CO. LTD., DEFENDANT.



The opinion of the court was delivered by: Judge Ronald A. Guzman

MEMORANDUM OPINION AND ORDER

After obtaining a temporary restraining order, Fellowes, Inc. filed a motion for a preliminary injunction, which the Court referred to the magistrate judge. The magistrate judge conducted a hearing on September 22, 2011, and on September 26, 2011, issued a Report and Recommendation ("R&R") recommending that Plaintiff's motion for preliminary injunction be granted. Both Plaintiff Fellowes, Inc. and Defendant Changzhou Xinrui Fellowes Office Equipment Co. Ltd. a/k/a Fellowes (Changzhou) Co. Ltd. filed timely objections to the R&R. For the reasons set forth below, this Court adopts the magistrate judge's R&R to the extent that it recommends granting the preliminary injunction, but respectfully declines to accept the recommendation with regard to bond. Accordingly, Plaintiff's motion for a preliminary injunction is granted.

I. Background

Plaintiff is a privately-owned global manufacturer based in Illinois, and Defendant is a limited liability company owned and organized under the laws of China. (R&R, Dkt. # 25, at 2.) Defendant is a joint venture between Fellowes Hong Kong Ltd. and Jiangsu Shinri Machinery Co (Jiangsu). (Id.) The instant case is the result of a dispute between Plaintiff and Defendant regarding the payment and delivery of several hundred purchase orders for hundreds of thousands of units of paper shredders and other office products. (Id.) As a result of a conflict between Fellowes Hong Kong and Jiangsu, Jiangsu stopped all shipments from Defendant to Plaintiff, including the shipments to fill pending purchase orders. (Id.) Plaintiff was forced to cancel thousands of orders from third parties and to expend resources to find replacement manufacturers. (Id.) Moreover, as a result of Defendant's actions, Plaintiff refused to pay invoices from Defendant on previously filled orders. (Id. at 3.) Plaintiff claims that it is contractually entitled to set off the damages incurred from Defendant's failure to ship goods by non-payment of the Defendant's invoices. (Id.)

Due to this dispute over the purchase orders, Defendant initiated a lawsuit in China seeking payment on the invoices ("Chinese lawsuit"). (Id.)Plaintiff then filed the current lawsuit, alleging breach of contract and seeking declaratory relief and an antisuit injunction. (Id.) After this Court granted Plaintiff a temporary restraining order, enjoining Defendant from acting in furtherance of the Chinese lawsuit, Plaintiff moved for a preliminary injunction seeking to enjoin Defendant from proceeding with the Chinese lawsuit. (Id.)

The foundation for Plaintiff's request for a preliminary injunction is the Terms and Conditions of purchase included with Plaintiff's purchase orders to Defendant. The purchase orders include a statement that "[c]ommencement of work or shipment of goods, whichever shall occur first, constitutes acceptance by Seller of Fellowes' standard Terms and Conditions." (Pl.'s Mem. Supp. Prelim. Inj., Dkt. # 14, Ex. B at 3.) The Terms and Conditions contain several clauses pertinent to this case. First, theGoverning Law section contains a forum selection clause stating that any legal action arising out of the agreement or transactions contemplated by the agreement shall be brought in the United States District Court in the Eastern Division of the Northern District of Illinois or the Circuit Court of Cook County. (Id. at 41.) Second, the Governing Law section also contains a clause that waives any bond or other security that might be required of either the Buyer or Supplier in the event of litigation. (Id. at 42.) Plaintiff seeks to enforce the forum selection clause and the bond waiver contained in the Terms & Conditions.

Prior to addressing the merits of the parties' objections, the Court notes that a separate arbitration proceeding is ongoing in China between Fellowes Hong Kong and Jiangsu, the partners in the joint venture. (Def.'s Obj., Dkt. # 50, at 11.) Specifically, Fellowes Hong Kong and Jiangsu have been involved in a dispute regarding the profitability of the joint venture since 2009. (Id.) In early 2011, Jiangsu filed an arbitration request pursuant to the arbitration clause in the joint venture agreement requesting financial distributions owed to Jiangsu as a result of Fellowes Hong Kong's failure to operate the joint venture at the required profit margin. (Id. at 12.) Fellowes Hong Kong responded that Jiangsu was in breach of the joint venture agreement because it was responsible for blocking shipments to Plaintiff and hiring guards to control the factory gates. (Id.) Thus, while the arbitration touches upon the failure of the Defendant to fulfill purchase orders by Plaintiff, which is at issue in this case, the arbitration proceeding is between the joint venture partners (i.e., the Defendant in this case) and is independent of the current action. (Id. at 18.)

II. Discussion

A district court reviews de novo any portion of a magistrate judge's report and recommendation to which written objections have been made. See Fed. R. Civ. P. 72(b).

Plaintiff objects to two matters within the R&R. First, Plaintiff requests that the preliminary injunction be granted against "Changzhou Xinrui Fellowes Office Equipment Co. Ltd. a/k/a Fellowes Changzhou Co. Ltd.," instead of "Fellowes Business Machines (Changzhou Co. Ltd. a/k/a Changzhou Xinrui Fellowes Office Equipment Co. Ltd." as stated in the R&R. (Pl.'s Obj. Dkt. # 39, at 2.) As the name of Defendant has been changed in both Plaintiff's amended complaint and the temporary restraining order, this order will reflect the appropriate name as well; thus, this objection is sustained. Plaintiff also asserts that it need not post any security to obtain a preliminary injunction.

Defendant objects to the R&R on several other grounds. First, Defendant contends that a preliminary injunction is inappropriate because it did not receive proper notice of the preliminary injunction hearing under Federal Rule of Civil Procedure 65(a)(1). Second, Defendant asserts that the R&R improperly found that Plaintiff had a likelihood of success on the merits. Finally, Defendant asserts that, contrary to the finding in the R&R, it would suffer harm as a result of the preliminary injunction. The parties' objections are addressed in turn.

A. Plaintiff's Objections 1. Posting of bond

Plaintiff asserts that it should not be required to post an injunction bond because: (1) Defendant has agreed to forego its right to any security from Plaintiff by accepting the Terms & Conditions, and (2) Defendant will not be harmed by the injunction, thus any security is unnecessary.*fn1

Generally, a court may issue a preliminary injunction only if the movant gives security in an amount that the court considers proper to pay for the costs and damages sustained by any party that has been wrongfully enjoined. Fed. R. Civ. P. 65(c). The amount of security required is a matter for the discretion of the trial court. Roche Diagnostics Corp. v. Med. Automation Sys., Inc. 646 F.3d 424, 428-429 (7th Cir. 2011). When the parties have agreed in a contract to waive their entitlement to an injunction bond, a court may properly set the bond at zero, though "judges should take account of the risk their deeds create." Id. at 428. In this case, Defendant accepted the Terms & Conditions of Purchase, which clearly state that "Buyer and Supplier.waive[] any bond, surety, or other ...


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