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Empire Industries Inc. v. Winslyn Industries, LLC

United States District Court, N.D. Illinois, Eastern Division

June 21, 2018

EMPIRE INDUSTRIES INC., Plaintiff,
v.
WINSLYN INDUSTRIES, LLC, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          MATTHEW F. KENNELLY, DISTRICT JUDGE

         Empire Industries Inc. (Empire) contends that Winslyn Industries, LLC (Winslyn) tortiously interfered in a contract between Empire and The Fireclay Factory LLC and Niko (INT) Ltd. (collectively, Fireclay) to produce sinks. Empire urges the Court to issue a preliminary injunction to prevent Winslyn from benefitting from its interference.

         Background

         This is a case about fireclay sinks, which are formed from clay fired at very high temperatures. They have existed for many years but are newly popular among homeowners. This suit arises from Empire's allegation that Fireclay, a sink manufacturer, promised it would manufacture certain sink designs exclusively for Empire but then produced sinks with an indistinguishable design for Winslyn, another distributor, in breach of this promise.

         I. Fireclay agrees to manufacture Empire's sinks

         Empire manufactures and distributes countertops, sinks, and other kitchen and bathroom accessories. Jacob Goren is the chief executive of Empire. Goren began designing a farmhouse-style fireclay sink in 2013 that he believed differed from others offered in the market. The sink was rectangular in design and featured thin walls, narrow-radius curves, and "contemporary styling." D.E. 74 ¶ 17 (Empire's Direct Examination Stmt. for Goren).

         In July 2016, Fireclay and Empire began to discuss the prospect of Fireclay manufacturing products for Empire. Fireclay produces products made of fireclay for customers around the world. Peter Shilling is its managing director; Tony Wood and Charles Woodhead are employed by Niko, an affiliated entity.[1] Goren began sending sink designs to Shilling so that Fireclay could create molds for the design. The record indicates that Fireclay produced at least two models for Empire. Both models-the Olde London and the Sutton Place-featured the same underlying design. The bottom and side panels were identical; only the decorative front panel differed. The Olde London sink featured a decorative stripe known as a "rebate" that ran parallel to the edges of the front panel; the Sutton Place sink featured vertical bands along the front panel.

         On March 21, 2017, Goren e-mailed Shilling to express concern that he had spent significant time developing the molds with Fireclay and was now "realizing that I may have done all this for my competition as our agreement is really one sided[.]" PX 17 at EMPIRE0000590-91. Goren expressed concern that his efforts were "helping to build a factory for the competition." Id. Goren offered to commit to continue purchasing approximately 1000 sinks per month from Fireclay; in exchange, Fireclay would not sell any sinks in the United States. In response, Wood said "I do understand your concerns, " and he offered Goren two options for an agreement. Id. at EMPIRE0000589-90. The first consisted of two terms: "[Fireclay] will supply exclusive products to your designs to your company only" and "OEM products for other possible customers could then be sold under a different design." Id. at EMPIRE0000589. Wood also stated "you can trust that we would not sell anyone else design as all I see that doing is undermining the market and chasing prices to the bottom." Id. at EMPIRE0000590. Goren agreed to this option. Then, on May 15, Goren e-mailed Wood to ask for "a simple gentleman agreement" that "the products there [sic] were designed for us we only be sold to us, and that you will not put newer customer orders ahead of ours." PX 19 at EMPIRE0000865. Wood stated, "you do have my word and Peter [Shilling] will back me up the same that we would not sell your products to and one [sic] else." Id.

         II. Fireclay contacts Winslyn; they contract to produce additional sinks

         As Fireclay exchanged e-mails with Empire, it was also communicating with Winslyn, another seller and distributor of kitchen products. William Stuebner is the president, founder, and part owner of Winslyn. In March 2017, Stuebner asked Fireclay which farmhouse-style sinks were available for sale. Fireclay provided a list of available sinks, and Winslyn relied upon this list to solicit potential customers. On June 2, Menard's, a major retailer, selected several sinks offered by Winslyn. But the sinks that Menard's selected were the sinks that Goren had designed for Fireclay to make exclusively for Empire.

         On June 19, Woodhead e-mailed Stuebner to inform him that the sink that Menard's wanted was not available because it belonged to another customer of Fireclay; he sent Stuebner pictures of an alternative design. PX 40 at WINSLYN00000897 (June 19, 2017 Woodhead e-mail to Stuebner) ("there is a owner ship issue now as the customer has paid for the mould so we have amended to what we have sent on the image"). Wood also told Stuebner that "design rights" prevented Winslyn from obtaining the sinks that Fireclay produced for Empire. Id. at WINSLYN000000896. However, Stuebner found the alternative sinks "significantly different." Id. He did not accept the alternative and insisted on acquiring the original model that his customers ordered:

Q. And you're telling [Wood, ] I imagine, "We've got millions of dollars on the line. You're going to damn well send me that sink"?
A. You could imagine that.
Q. Correct. Is that basically how it happened?
A. Yeah. "I need my sink. I've got business here."

         May 30, 2018 Hr'g Tr. at 137-38.[2] In response, Fireclay told Winslyn it would "need to amend the mould[.]" PX 42 at WINSLYN00000905.[3] When Stuebner again asked why Winslyn could not obtain the original design, Wood told Stuebner that Fireclay had another customer and "I had to agree we would only sell them that product." Id. Wood then proposed a new sink design for Winslyn. But he also assured Winslyn that, based upon a comparison between an image of Empire's original design and Winslyn's new design, "You won't tell any difference of the photo shop." PX 43 at WINSLYN00001027 (July 3, 2017 Wood e-mail to Wang). Fireclay ended up producing sinks for Winslyn containing a very minor, arguably inconsequential, alteration to the front panel of the Olde London sink: it adjusted the rebate by less than two centimeters. By July 2017, Winslyn's customers placed orders for these new sinks, which Fireclay fulfilled.

         III. Empire learns of Fireclay's sales to Winslyn

         While Fireclay was working with Winslyn to produce sinks, it continued to work alongside Empire as well. Goren had grown concerned that Fireclay was delivering its sinks at a slow pace, so he visited Fireclay's factory, located in the United Arab Emirates, in November 2017. Goren toured the factory and saw hundreds of sinks in production; he thought that Fireclay was finally producing sinks at the capacity it promised. But, after returning from lunch, he noticed sinks that contained only slight variations from the sinks he designed. When confronted, Fireclay told Goren that the sinks were for an Australian customer and would not be sold in the United States. Nonetheless, Goren was frustrated: he believed Fireclay used his design to make these sinks and had delayed shipments to Empire to produce sinks for another customer. Yet Empire later learned that Fireclay was selling these sinks to Winslyn in the United States.

         On November 28, Goren e-mailed Wood, Shilling, and the Winslyn customer support e-mail address. Goren offered to forego litigation if Fireclay honored its agreement not to sell what he believed to be Empire's sink design. Goren also contacted a representative of Ferguson Enterprises, another retailer he believed was receiving the sinks, to warn of Fireclay's obligation to Empire.

         Stuebner e-mailed several Fireclay employees on November 30 to inquire about Goren's e-mail. In response, Wood said there was "no issue" and that the sinks about which Goren was e-mailing "ha[d] been in the market for many years." DX 36 at WINSLYN0001765 (Nov. 30, 2017 Wood e-mail to Stuebner).

         Goren contacted Fireclay to urge it to uphold the exclusivity agreement. Fireclay denied that there was a binding exclusivity agreement and said that the sinks produced for Winslyn were not the same as Empire's sinks. On December 29, Fireclay notified Empire it terminated any contractual relationship they had.

         IV. Empire files suit

         On January 30, 2018, Empire filed a complaint against Winslyn, alleging tortious interference with contractual relations and tortious interference with prospective economic advantage. On March 28, Empire moved for a temporary restraining order and a preliminary injunction. On March 29, Empire amended its complaint to specifically request the Court to enjoin Winslyn from receiving additional Fireclay sinks. The Court denied Empire's motion for a temporary restraining order on April 6. On May 23, Empire filed a second amended complaint. This complaint named Winslyn, Fireclay, and Niko.[4] Though the complaint removed the claim of tortious interference with prospective economic advantage, it added claims for unjust enrichment, breach of contract, fraud, and civil conspiracy. Empire seeks an injunction to preclude Winslyn from continuing to market sinks from Fireclay using Empire's designs.

         On May 30, the Court held an evidentiary hearing on Empire's motion for a preliminary injunction. The parties then filed post-hearing briefs.

         Discussion

         Empire has moved for a preliminary injunction. To obtain a preliminary injunction, Empire must first show it has "some likelihood of success on the merits, " no adequate remedy at law, and will suffer irreparable harm if the injunction is denied. Ty, Inc. v. Jones Grp., Inc., 237 F.3d 891, 895 (7th Cir. 2001). If Empire can meet these requirements, the Court then balances the harm Empire would suffer if the injunction is denied against the harm Winslyn would suffer if the injunction is granted. Id.

         Before proceeding to the merits of Empire's preliminary injunction motion, the Court must address two points at the onset to clarify the decision that follows. First, Empire peppers its briefs with terms like "proprietary design, " suggesting a claim based on, perhaps, trade dress. But it does not actually assert a claim on that basis. Rather, Empire has argued, and the Court restricts its analysis to, Empire's likelihood of success on a claim that it entered into an enforceable contract restricting Fireclay's ability to sell Empire's sink design to others and whether Winslyn intentionally interfered with that contract. In its briefs, Winslyn addresses what ...


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