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Tension Envelope Corporation v. Jbm Envelope Co.

United States District Court, W.D. Missouri, Western Division

July 7, 2014

TENSION ENVELOPE CORPORATION, Plaintiff,
v.
JBM ENVELOPE COMPANY, Defendant.

ORDER

FERNANDO J. GAITAN, Jr., District Judge.

Currently pending before the Court is plaintiffs' Motion for a Temporary Restraining Order and a Preliminary Injunction (Doc. #2).

I. BACKGROUND

Tension Envelope Corporation is an envelope manufacturer which manufacturers and prints many of its envelopes and contracts with other specialty manufacturers to manufacture envelopes for Tension's customers. JBM Envelope Company was started in 1985, by Greg Sheanshang, a former Tension employee who left Tension to form an envelope brokerage business. In 1989, JBM got out of the brokerage business and became a manufacturer of small open-end envelopes. Tension alleges that JBM told them that it would only sell to the trade and would not sell directly to Tension's customers. Based on these assurances, Tension agreed to use JBM to manufacture specialty envelopes for its customers. Tension alleges that for more than ten years the parties conducted business on these terms. Tension states that it even leased two specialty machines to JBM for it to use in making the specialty envelopes. In 2008, Greg Sheanshang's son, Marcus, purchased JBM from his father. On June 19, 2014, JBM notified Tension that it would begin selling directly to Tension's two largest customers. On June 23, 2014, JBM contacted the buyers for Customers A and B and advised them that JBM had terminated its arrangement with Tension and was now going to sell directly to them. Tension alleges that while it is possible for Tension to either directly manufacture these envelopes themselves or contract with specialty manufacturers for the production of these envelopes, it may take up to 12 to 18 months to modify its existing equipment or purchase new equipment.

II. STANDARD

In determining a litigant's right to a temporary restraining order, the Court considers four factors: "(1) the threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest." Kelly v. Reeves, No. 4:11CV3208, 2012 WL 37519, *3 (D.Neb. Jan. 9, 2012) citing ( Dataphase Systems. Inc. v. C.L. Systems, Inc. , 640 F.2d 109, 113 (8th Cir. 1981)).

III. DISCUSSION

A. Probability of Success on the Merits

1. Breach of Contract

Tension argues that its contract claims are governed by Article 2 of the UCC, specifically provisions 2-204, 2-208 and 2-306. Tension argues that this provision provides that "[a] contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." Mo.Rev. Stat. ยงยง 400.2-204(1). Tension argues that over the ten year course of performance, the parties have evidenced an agreement whereby JBM agreed to supply Tension with specialty envelopes as needed to fill the requirements of Tension's customers. Tension asserts that the terms of the parties' agreement is clear, "not from any formal, written, signed contract, but from the statements and conduct of the parties, as evidenced by their ten-year course of performance. Under the UCC, this is all that is required to prove the existence of a binding contractual agreement." (Tensions's Suggestions in Support, p. 8). Tension argues that Section 2-204 and 2-208 establish the existence of an agreement and Section 2-306 establishes the terms of the agreement and thus Tension has established the existence of a valid, binding contract, which JBM has breached.

The Court disagrees. As JBM notes in its suggestions in opposition, "[n]o contract or agreement has ever existed between Plaintiff and Defendant that requires Tension to use JBM as its exclusive supplier of any particular envelope products or requires JBM to continue to supply any products to Tension." (JBM's Suggestion in Opposition, p. 4). In Teter v. Glass Onion, Inc. , 723 F.Supp.2d 1138 (W.D.Mo. 2010), the Court considered a similar argument. In that case, an art gallery argued that it had contractual rights under the UCC to use the artist's images for advertising purposes. The art gallery contended that an agreement for the sale of goods was formed based on an agreement during a meeting between the parties. In that case, the parties engaged in approximately eight transactions over a nine month period of time. In Teter, this court stated:

a sale of goods contract under the UCC does not displace principles of the common law of contracts.... An enforceable contract requires that the parties be (1) competent to contract, (2) be of proper subject matter, (3) have legal consideration, (4) mutuality of agreement and (5) obligation.

Id. at 1159 (internal citations omitted). In Teter, the Court noted that consideration is found where "both parties have obligated themselves by mutual promises that impose some legal duty or liability on each promisor." Id . However, the Court noted that if the parties had not bound themselves to such an obligation, "there is no legal contract between the parties because there is a failure of consideration." Id . In Teter, the gallery owners argued that the parties reached an agreement and based on their subsequent conduct, an agreement existed. However, this Court disagreed and found that the purported agreement failed for indefiniteness and lack of consideration, stating, "Teter was under no legally enforceable obligation to continue selling artwork to the Gallery at any point in time, neither under [the former owner] nor [the current owner]'s ownership. Teter could stop selling or refuse to sell a painting to the Gallery if he so chose, and the Gallery would have had no legal recourse to enforce the sale." Id . at 1160. The Court finds this case analogous to the instant action. In this case, as in Teter, JBM was not obligated to continue accepting orders ...


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