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Element Snacks, Inc. v. Garden of Light, Inc.

United States District Court, D. Connecticut

August 9, 2018

ELEMENT SNACKS, INC. Plaintiff,
v.
GARDEN OF LIGHT, INC., d/b/a BAKERY ON MAIN Defendant.

          MEMORANDUM OF DECISION GRANTING IN PART PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION [DKT. 2]

          Hon. Vanessa L. Bryant United States District Judge

         Before the Court is a Motion for Preliminary Injunction on which the Court conducted an evidentiary hearing on August 1, 2018 (the “Hearing”). Plaintiff seeks to maintain the status quo prior to its contractual dispute with Defendant until the parties' arbitral proceedings conclude. [Plaintiff's Mot. for Preliminary Injunction, Dkt. No. 2-1, at 2]. Plaintiff, Element Snacks, Inc. (“Element”), is a New York corporation which sells organic rice cake snack food products. [Affidavit of Nadia Leonelli, Dkt. No. 24, ¶ 2]. Defendant, Garden of Light, Inc., doing business as Bakery on Main (“Bakery”), is a “co-packer” - a company that works with businesses like Element to co-manufacture and co-pack food products. [Dkt. No. 24, ¶ 6]. The dispute concerns Bakery's threatened termination of the parties' contract for Bakery to manufacture Element's products. Element contends that it will suffer irreparable harm if Bakery is allowed to terminate the contract. [Dkt. No. 2-1, at 9].

         I. Factual Background

         The following facts are taken from the record and from the evidence introduced at the Hearing. Element and Bakery executed a written Manufacturing Agreement on October 25, 2016 under which Bakery agreed to manufacture specialty rice cakes to Element's specifications (the “Agreement.”). [Complaint, Dkt. No. 1, ¶ 9]. Bakery warranted:

The Products as delivered to Company will conform to the Specifications, be free of all material defects arising from improper manufacture and handling, including contamination, and be unadulterated and fit for consumption by humans. As shipped to Company, the Products will be packaged and appropriately marked for lot code identification and date of manufacture in accordance with applicable Law and Company's specifications.

[Manufacturing Agreement, Dkt. No. 1-1, § 1(a)(iii)]. Element made no representations or warranties concerning the equipment or ingredients the contract required Bakery to use.

         The Agreement specifies the price Element is obligated to pay Bakery and the method for adjusting the price. [Dkt. No. 24, ¶ 11; See Dkt. No. 1-1, §§ 2(a), 2(b)].

         The Agreement further describes the composition of the price:

Except for chocolate, which will remain fixed during each calendar quarter, the Production Materials cost component of the Price will remain fixed during each six (6) month period of the Term (as hereinafter defined), with Manufacturer assuming whatever gains or losses may result from price fluctuations in the cost of Production Materials during such period. Manufacturer shall, at least fifteen (15) days before the start of any such six month period, provide Company with updated Production Material costs by providing a detailed cost sheet for each Product and any other documentation reasonably requested by company.
Company will, prior to the commencement of each six month period, agree upon the actual cost of the Production Materials that will be incorporated into the Price of the Products for the next six month period.

[Dkt. No. 1-1, §§ 2(a)].

The Parties acknowledge and agree that, except as set forth below, the “Price” payable for the Products shall include all of Manufacturer's costs and expenses related to the production and packaging of the Products, including without limitation, labor, overhead, purchase of Production Materials, receipt, unloading and warehousing of Production Materials, performance of the manufacturing and packaging activities (in bulk (i.e., in corrugated shippers), in retail carton and/or for retail sale), application of labeling, warehousing of the Products, loading the Products onto a trailer for transport, disposal of related waste, insurance and profit. The Price payable for the Products shall not include any costs or expenses relating to the tooling, packaging, set-up, plant trials (which shall be conducted prior to production), or third party laboratory testing relating to the Products or Production Materials (which manufacturer shall perform upon Company's written directive). Any costs and expenses relating to the foregoing shall be pre-approved by Company.

[Dkt. No. 1-1, § 2(b)].

         The parties agreed that this price would be fixed for six-month periods:

Labor costs will be reviewed annually and an adjustment thereto will be implemented, based on demonstrable increases or decreases in labor costs, ninety (90) days after notice of adjustment is delivered to Company. Price Component pricing will be reviewed every six (6) months, adjusted when necessary, and implemented in accordance with Section 2(a).

[Dkt. No. 1-1, § 2(c)].

         The Agreement has a three-year term commencing on October 25, 2016. [Dkt. No. 1-1, Preamble]. The Agreement establishes a process for renewal:

Except as otherwise set forth in this Agreement, the obligation of Manufacturer to provide Products to Company pursuant to this Agreement, and Company's obligation to purchase the Products ordered from Manufacturer pursuant to Purchase Orders, shall commence on the Effective Date and continue until the third anniversary of the Effective Date (together with any renewal terms, the “Term”). Thereafter the term shall renew for successive terms of one (1) year unless either Party provides a non-renewal notice at least one hundred eighty (120) [sic] days prior to the expiration of the initial term or any renewal term. Such notice shall be ...

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