Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION-3d Cir.: Water producer not entitled to preliminary injunction blocking termination by Nestle, (Dec 23, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by a beverage distributor against a bottled drinking water producer over the termination of a distributorship agreement, the district court properly denied the distributor’s application for a preliminary injunction, the U.S. Court of Appeals in Philadelphia has ruled. Thus, the district court order denying the plaintiff’s application for a preliminary injunction was affirmed (Watchung Spring Water Co., Inc. v. Nestle Waters North America Inc., December 22, 2014, Fuentes, J.).

Nestle and Watchung Spring Water Co., Inc. entered into a distributorship agreement in 1994, in which Watchung operated as an exclusive distributor of certain Nestle products in a defined geographic area in New Jersey. The agreement had an automatic renewal provision, absent six months written notification of an intention not to renew. In May 2014, Nestle sent Watchung a letter terminating the agreement and, months later, sent Watchung a proposed agreement that would render Watchung a non-exclusive distributor in the same territory.

Watchung consequently brought suit for declaratory and injunctive relief, alleging, in part, violations of the New Jersey Franchise Practices Act (FPA). Watchung also applied for a preliminary injunction. The district court denied Watchung’s request, and Watchung appealed.

The appellate court found that the district court properly concluded that Watchung failed to establish a likelihood of success on the merits due to doubts that Watchung’s New Jersey facility qualified as a place of business under the FPA. To determine if the place of business requirement was satisfied, the court followed the New Jersey Supreme Court decision in Instructional Sys., Inc. v. Computer Curriculum Corp, 614 A.2d.124 (1992). That court required a sales location in New Jersey. A mere distribution through an office or warehouse did not qualify. In this case, Watchung’s New Jersey facility was a warehouse, and any direct sales to customers at the facility were not substantial.

Watchung’s argument that the district court failed to consider that Nestle breached a provision of the distributorship agreement which required the signature of an officer of each party to modify the agreement was rejected. The appellate court noted that the provision did not apply to non-renewal and an officer was not required to deliver the notice on non-renewal. Thus, the denial of the application for preliminary injunction was proper.

The case is No. 14-4264.

Attorneys: Daniel D. Barnes (Wolff & Samson) for Watchung Spring Water Company Inc. Elena T. McDermott (Herrick Feinstein) for Nestle Waters North America Inc.

Companies: Watchung Spring Water Co., Inc.; Nestle Waters North America Inc.

Cases: FranchisingDistribution DelawareNews NewJerseyNews PennsylvaniaNews