160 F.

3d 58

OCEAN SPRAY CRANBERRIES, INC., Plaintiff, Appellant,

v.
PEPSICO, INC., Defendant, Appellee.
No. 98-1948.

United States Court of Appeals,

First Circuit.
Heard Oct. 5, 1998.
Decided Nov. 12, 1998.

James C. Burling with whom Michelle D. Miller, Cynthia D. Vreeland,

Mark D. Selwyn and Hale and Dorr LLP were on brief for appellant.
Ronald S. Rolfe with whom Toni G. Wolfman, Michael A. Albert, Foley,
Hoag & Eliot LLP, David J. Stone, Illana B. Chill, Victor L. Hou and
Cravath, Swaine & Moore were on brief for appellee.
Before BOUDIN, Circuit Judge, REAVLEY,* Senior Circuit Judge, and
LIPEZ, Circuit Judge.
BOUDIN, Circuit Judge.

This is an appeal by Ocean Spray Cranberries, Inc. ("Ocean Spray") from a

district court order denying Ocean Spray a preliminary injunction against
PepsiCo, Inc. ("Pepsi"). The dispute between the two companies centers on
their distribution agreement, whose exclusivity clause has apparently been
breached by Pepsi. Although the appeal is not without substance, we sustain the
district court's refusal to grant the injunctive relief sought.

Ocean Spray is an agricultural cooperative owned by about 950 cranberry and

citrus growers. It is a leading producer of canned and bottled juices and juiceflavored beverages; its annual sales appear to be well over $1 billion. Most of
its revenue and profits come from so-called "multiserve" juice products
(containers with more than 20 ounces), which are sold through brokers and
wholesalers.

The issue in this case is Ocean Spray's sale of so-called "single-serve" juice
products (containers of 20 ounces or less). Starting in 1992, Pepsi became
Ocean Spray's exclusive distributor for single-serve juice products. By 1997,
Ocean Spray was deriving about $125 million from the sale of such products
through Pepsi's company-owned bottlers. It earned another $100 million or so
by sales through independent bottlers licensed by Pepsi to handle Pepsi's own
products, but the contracts between Ocean Spray and these independent Pepsi
bottlers are not at issue in this case.

Pepsi's company-owned bottlers supply retailers with Pepsi products in

territories not served by the independent licensed Pepsi bottlers. When Pepsi
became the exclusive distributor for Ocean Spray, its company-owned bottlers
ceased to handle the juices of companies competing with Ocean Spray (such as
Welch's and Mott's). Since 1992, Ocean Spray has enjoyed the use of Pepsi's
company-owned bottlers not only to distribute Ocean Spray's single-serve
products, but also for a range of related services for those products, including
promotion, the securing of national contracts, purchase of shelf space, and
installation of coolers in grocery stores and restaurants.

The original 1992 agreement between Pepsi and Ocean Spray was a long-term
agreement but did not work smoothly. It was replaced in 1995 by a new, shortterm agreement that Pepsi then sought to terminate. Shortly before the
termination date, the parties entered into the present agreement in March 1998;
the agreement provided for Pepsi to distribute through its company-owned
bottlers covered single-serve Ocean Spray juice products. The precise
definition of a covered single-serve product is not in dispute.

The 1998 agreement included Pepsi's promise not only to distribute the covered
products but also to employ "reasonable best efforts" to promote and sell the
Ocean Spray products it distributes. It included exclusivity provisions shortly to
be described. And since 1991, when the parties first entered into negotiations,
both have been bound by a separate contract to protect each other's confidential
information, from marketing and distribution strategy to research and product
formulae.

The 1998 agreement is exclusive in both directions. With limited exceptions,

Pepsi agreed that it would not distribute any noncarbonated juice or juicecontaining beverage that competed with covered Ocean Spray products. One
limited exception permitted Pepsi to distribute certain juice products that
compete with Ocean Spray covered products if made by Pepsi itself and not
acquired from a third party by a stock or asset purchase or otherwise.

Conversely, Ocean Spray agreed that it would not distribute--other than

through Pepsi--its own covered products in the territories of Pepsi bottlers.
8

The 1998 agreement provided for termination by either party, but the earliest
notice Pepsi could give is in 1999, and even then the agreement was to
continue until December 31, 2000. Nevertheless, in July 1998, four months
after executing the new distribution agreement with Ocean Spray, Pepsi
announced that it was purchasing Tropicana Products, Inc. ("Tropicana"), a
leading producer of juices and a major competitor of Ocean Spray, especially in
the supply of single-serve containers of orange juice.

On August 10, 1998, Ocean Spray filed a complaint and motion for preliminary
injunction in the district court. Ocean Spray charged that Pepsi was breaching
the 1998 distribution agreement, which barred it from distributing "directly or
indirectly" products that competed with Ocean Spray's covered single-serve
products. Specifically, Ocean Spray sought to enjoin Tropicana "upon
acquisition by Pepsi" from selling competing single-serve juice products for the
duration of the Pepsi-Ocean Spray 1998 agreement. Pepsi's acquisition of
Tropicana was completed on August 25, 1998.

10

Pepsi opposed Ocean Spray's motion in the district court, and both sides filed
extensive affidavits. On August 20, 1998, the district court entered an order
denying Ocean Spray's motion for a preliminary injunction, and on September
4, 1998, the district court entered a memorandum and order reaffirming the
denial and setting forth reasons. The primary basis for denying the preliminary
injunction was a finding of lack of irreparable injury to Ocean Spray.

11

On this appeal, Ocean Spray argues that Pepsi has breached its exclusivity
obligation under the 1998 agreement, that Pepsi will inevitably (if it has not
already) violate the best efforts and confidentiality agreements, and that
damages would be difficult, if not impossible, to calculate fully. Pepsi insists
that its company-owned bottlers continue faithfully to distribute and market
Ocean Spray products and will not handle competing Tropicana products
during the remainder of the 1998 agreement's term. Pepsi also denies that it has
breached or will breach the confidentiality agreement.

12

Under federal law, a preliminary injunction depends upon the familiar four-part
test requiring the moving party to show likelihood of success on the merits,
irreparable injury, and a favorable balance of the equities, including effects on
the public interest. See Ross-Simons of Warwick, Inc. v. Baccarat, Inc., F.3d
12, 15 (1st Cir.1996). Massachusetts standards for a preliminary injunction do

not seem markedly different, see Packaging Indus. Group, Inc. v. Cheney, 380
Mass. 609, 405 N.E.2d 106, 112 (Mass.1980), and in any event, neither side
here argues that there is a pertinent state-law difference that would govern a
federal court in a diversity matter. Cf. A.W. Chesterton Co., Inc. v. Chesterton,
907 F.Supp. 19, 25 n. 9 (D.Mass.1995). The standard of review in this court is
deferential.1
13

In this case, Pepsi scarcely disputes that the acquisition of Tropicana violated
its exclusivity obligation under the agreement as long as Tropicana continues to
distribute covered products. Ocean Spray seizes on this (occasionally hedged)
concession to argue that the only remaining issue is irreparable injury; it
assumes that the equities are favorable to it (Pepsi's breach being deliberate),
and that the public interest is served by forcing businesses to adhere to their
contracts. The situation is slightly more complicated than Ocean Spray
suggests.

14

The likelihood of success that is relevant here where an injunction is sought is

the likelihood that Ocean Spray would, after trial, be entitled to a permanent
injunction to restrain Tropicana from distributing competing products during
the duration of the 1998 agreement. One might suppose that such relief would
follow from Pepsi's concession that Pepsi's ownership of Tropicana is itself a
breach of the exclusivity clause. Instead, as first-year law students quickly
learn, the enforcement of contracts by injunction is the exception rather than
the rule.

15

Historically, equity would not supply relief where legal remedies sufficed, and
damages at law usually do provide remedies for breach of contract. See
Farnsworth, Contracts 12.4, at 852 (2d ed.1990). A famous formulation is
Justice Holmes's statement that "[t]he duty to keep a contract in law means a
prediction that you must pay damages if you do not keep it,--and nothing else."
Holmes, The Path of the Law, 10 Harv. L.Rev. 457, 462 (1897). Modern
theorists have explained why it is often "efficient" to limit the remedy to
damages and exclude injunctive relief. E.g., Patton v. Mid-Continent Sys., Inc.,
841 F.2d 742, 750 (7th Cir.1988) (Posner, J.).

16

Still, injunctive relief requiring performance of a contract may ordinarily be

granted (if other prerequisites are met) where monetary damages will not afford
complete relief. A common example is agreements involving the sale of real
property; specific performance is often granted because property is considered
unique. See, e.g., Walgreen Co. v. Sara Creek Property Co., 966 F.2d 273, 278
(7th Cir.1992). The same principle applies where harm caused by a breach,
although economic in nature, is impossible to measure accurately. See Ross-

Simons, 102 F.3d at 19.

17

Accurate measurement, of course, is a matter of degree. Courts have sometimes

refused injunctions to enforce franchise or similar contracts involving ongoing
business relationships--situations in which it would ordinarily be difficult to
prove with perfect accuracy the revenues lost as a result of the breach. See, e.g.,
Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979);
Foreign Motors, Inc. v. Audi of America, Inc., 755 F.Supp. 30, 33
(D.Mass.1991). Thus, some measure of uncertainty does not automatically
avoid Holmes's precept.

18

Yet in other cases, uncertainty has been deemed to warrant injunctions. For
example, in K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907 (1st Cir.1989),
this court upheld a preliminary injunction for K-Mart where a shopping malllandlord threatened to construct new retail space in a parking lot in front of the
K-Mart, apparently contrary to the terms of the parties' 20-year lease
agreement. We agreed that "the loss of revenues resulting from considerations
such as diminished visibility, restricted access, less commodious parking, and
the like are sufficiently problematic as to defy precise dollar quantification." Id.
at 915. 2

19

In this case, Pepsi's acquisition of Tropicana alters its incentives to promote

Ocean Spray if--and this is a large "if"--one disregards possible sanctions
against Pepsi. Without Tropicana, Pepsi's incentives in pricing and promotion
of Ocean Spray's covered products are largely aligned with those of Ocean
Spray, assuming that the distribution contract was competently drafted. As one
of Ocean Spray's experts points out in his affidavit, Tropicana's acquisition
inserts a conflicting incentive, namely, that successful promotion of Ocean
Spray can take sales away from Tropicana, in which Pepsi now has an
economic interest.

20

Of course, the change in incentive is limited. The customer sales

representatives who work for Pepsi's company-owned bottlers apparently
receive compensation based on a percentage of sales. Pepsi also has an
incentive to keep content the retailers to whom it supplies Pepsi, as well as
Ocean Spray, products. Still, especially at higher levels of the Pepsi company,
strategy as to distribution, Pepsi's pricing of Ocean Spray products its
promotion expenditures, and other decisions could be affected by the prospect
that Pepsi's long-term interests are now aligned with Tropicana.

21

Ocean Spray's affidavit also makes a plausible case that, to the extent that Pepsi

does slacken its efforts to promote Ocean Spray's covered products during the
remaining (probably brief) life of the 1998 agreement, the impact could go
beyond the loss of sales and profits. One affiant points to so-called "spillover"
effects by which diminished promotion of Ocean Spray's widely available
single-serve products could in turn diminish sales of its larger container
products; and consequences may endure beyond the termination of the
agreement, whether viewed as longer-term loss of sales or impairment of the
value of Ocean Spray's trademark. Damages may be difficult to prove with
complete accuracy.
22

Nevertheless, there is another side to the story. Pepsi and Ocean Spray have a
relationship stretching back to 1992; although the contracts differed during this
period, this history provides some benchmark for making judgments as to
Pepsi's future efforts. Prior sales levels and other prior conduct of Pepsi vis a
vis Ocean Spray's products, may make it much easier for Ocean Spray to detect
Pepsi's failure to use its best efforts hereafter to promote Ocean Spray's
products. Certainly difficulties in detecting immediate lost sales and profits
appear to be considerably less than in calculating the amount of spillover or
long-term effects.

23

If we assume that any slackening of effort can be detected, Pepsi has counterincentives to continue behaving as it would if Tropicana had never been
acquired. While contract violations do not normally give rise to punitive
damages, a deliberate breach of Pepsi's best efforts obligations could give rise
to multiple damages under Massachusetts's chapter 93A, a claim that Ocean
Spray has already asserted in its complaint.3 And there is nothing that would
prevent Ocean Spray from renewing its request for injunctive relief if it could
detect and establish that Pepsi was not using its best efforts on behalf of Ocean
Spray.

24

In this important respect, Ocean Spray's situation is very different from that of
the plaintiffs in K-Mart and Ross-Simons. There, the defendants' proposed
actions would have had immediate adverse effect on the plaintiffs (construction
of an obstructing building in one case and the cut-off of supplies in the other).
Here, Pepsi's company-owned bottler distribution channel remains open to
Ocean Spray, and the only question is whether Pepsi will let its pricing and
promotion behavior be influenced by the Tropicana acquisition. Although
businesses act in their economic best interests, those interests in this case
include avoiding multiple damages and the risk of devastating injunctive relief.

25

The second consideration is duration. Pepsi can give notice of termination as

early as January 1, 1999 (although it would then continue distributing Ocean

Spray until the end of the year 2000). Ocean Spray had to know that during that
contractually established transition period Pepsi might consider aligning its
fortunes with another supplier. In fact, the 1998 agreement provided for
arbitration if there were a claim by Ocean Spray of lost sales during this
transition.
26

This is in stark contrast to a case like K-Mart in which the obligation being
breached was a 20-year commitment. See KMart, 875 F.2d at 915-16. Not only
is the harm potentially much greater as the period stretches out, but so also the
difficulties of calculating damages. See id. We do not say that there is some
basic dividing line between one year and 20, but only that this is a further
consideration that limits the significance of any claim of irreparable damages.

27

Finally, if Pepsi did wrongfully reduce its efforts on behalf of Ocean Spray and
that fact were proved, the jury would then be entitled to very considerable
latitude in estimating the damages, both from direct and indirect effects. It is
well settled that the jury is given a good deal of freedom in estimating damages
against a defendant who created the risk of uncertainty as to damages by its
own wrongdoing. See Jay Edwards, Inc. v. New England Toyota Distrib., Inc.,
708 F.2d 814, 821 (1st Cir.1983), cert. denied, 464 U.S. 894, 104 S.Ct. 241, 78
L.Ed.2d 231 (1983); Computer Sys. Eng., Inc. v. Qantel Corp., 740 F.2d 59, 67
(1st Cir.1984) (Massachusetts law). And, if any up-side error is likely to be
doubled or tripled under chapter 93A, the risks for Pepsi are multiplied.

28

One other consideration affecting equities although not damages is the drastic
relief sought by Ocean Spray. Effectively, Ocean Spray is asking that after the
acquisition, Tropicana be forbidden from continuing to use its own channels to
distribute its own single-serve juices at all in geographic areas in which Ocean
Spray distributes its competing products. Tropicana is a leading competitor, and
the effect of so drastic a solution would be greatly to benefit Ocean Spray by
undercutting competition from Tropicana that existed long before the
acquisition was a twinkle in Pepsi's eye.

29

We turn now to a different claim by Ocean Spray: that Pepsi has breached and
will continue to breach its obligation under the 1991 agreement to keep
confidential Ocean Spray's business information. Ocean Spray complains that
at the top level of Pepsi management, the same individuals are responsible not
only for Ocean Spray but for Tropicana. Ocean Spray points to cases in which
the courts have granted injunctions merely to prevent conduct creating a risk
that confidential information will be divulged or misused. See, e.g., Crane Co.
v. Briggs Manufacturing Co., 280 F.2d 747, 750 (6th Cir.1960); Lumex, Inc. v.
Highsmith, 919 F.Supp. 624, 636 (E.D.N.Y.1996).

30

Ocean Spray does not spend much time on this issue in its brief, addressing it in
only a few paragraphs. The case law suggests that almost everything turns upon
the facts, including the nature of the transaction, the threat of wrongful
disclosure, the consequences if it occurs, and the reach of the relief sought.
Nothing that we can discern in reviewing the affidavits persuades us that there
is anything inevitable about the misuse by Pepsi of whatever information
Ocean Spray has given or chooses to give in the future.

31

Furthermore, Ocean Spray's claim as to disclosure is offered only to support the

far-reaching injunction it seeks restraining Tropicana from distributing
competing products for the life of the agreement. Nothing prevents Ocean
Spray from seeking narrower relief, if this should prove warranted, enjoining
the misuse of confidential information, limiting its distribution within Pepsi, or
otherwise tailoring relief to meet the claimed threat of harm. Whether blatant
misuse might justify even broader relief against Tropicana's distribution activity
is an issue that need not now be faced.

32

Affirmed.

Of the Fifth Circuit, sitting by designation

The usual rubric refers to abuse of discretion, see Ross-Simons, 102 F.3d at 16,
but this phrasing is most pertinent to issues of judgment and the balancing of
conflicting factors; rulings on abstract legal issues remain reviewable de novo,
and findings of fact are assessed for clear error, see American Bd. of Psychiatry
and Neurology, Inc. v. Johnson-Powell, 129 F.3d 1, 2-3 (1st Cir.1997)

Similarly, in Ross-Simons, 102 F.3d at 20, this court upheld a preliminary

injunction against Baccarat, which, in apparent violation of the parties'
contractual agreement, refused to continue selling its famous crystal to RossSimons, a discount retailer. We noted that apart from direct loss of sales of the
crystal, Baccarat's withdrawal would undermine Ross-Simons' wedding registry
service, alienating the retailer's potential registrants and diminishing its
reputation--goodwill and reputation in particular being "not easily measured or
fully compensable in damages." Id

Massachusetts forbids by statute "[u]nfair methods of competition and unfair or

deceptive acts or practices" in the course of commerce. Mass. Gen. Laws ch.
93A, 2 (1997). The statute allows for double or treble damages for its willful
or knowing violation. See id. 11. Under this statutory scheme, courts have
made clear that breach of contract " 'in disregard of known contractual

arrangements' and intended to secure benefits for the breaching party" may give
rise to 93A liability. Ahern v. Scholz, 85 F.3d 774, 798 (1st Cir.1996), quoting
Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 583 N.E.2d 806, 821
(Mass.1991). If the breach is particularly egregious, it can prompt punitive
damages. See, e.g., Cambridge Plating Co. v. Napco, Inc., 85 F.3d 752, 770 (1st
Cir.1996)