Amanda Alongi 

St. John's University School of Law

American Bankruptcy Institute Law Review Staff

Pursuant to Rule 56 of the Federal Rules of Civil Procedure,[1] a court may issue a preliminary injunction if the party seeking the injunction demonstrates: “(1) the likelihood of success on the merits; (2) the risk of irreparable injury absent preliminary relief; (3) the balance of equities; and (4) the public interest.”[2] In Autobar Systems of New Jersey v. Berg, the United States Court of Appeals for the Third Circuit held that a preliminary injunction can be awarded only if the movant can clearly show it will suffer irreparable harm.[3] According to the Third Circuit, the irreparable harm element may be satisfied by showing a risk of business shutdown or bankruptcy if a preliminary injunction is not granted.[4]

Pursuant to an agreement, Total Liquor, an alcohol distributor, agreed to purchase alcohol from Berg Liquor, an alcohol manufacturer.[5] The agreement further included a non-compete agreement precluding Total Liquor and its owner, Alber Dorsey, from receiving alcohol from any of Berg Liquor’s competitors.[6] Berg Liquor attempted to terminate the agreement, arguing that Total Liquor failed to meet its sales quotas.[7] Consequently, Total Liquor argued the termination was improper and made in bad faith, demanding for Berg Liquor to rescind the termination notice.[8] Berg Liquor did not rescind the termination, which caused Total Liquor to file suit against Berg Liquor in the district court of New Jersey for: (1) breach of contract, (2) breach of its duty of good faith, and (3) violation of the New Jersey Franchise Practices Act.[9]Total Liquor requested relief of a preliminary injunction for Berg Liquor to continue supplying alcohol, arguing that without the manufacturer-distributor agreement, Total Liquor’s business will fail.[10]

The New Jersey district court denied the preliminary injunction motion, reasoning that Total Liquor would not face irreparable injury since the business is able to distribute alcohol to customers, the very purpose of its business.[11]Total Liquor appealed the district court’s decision to the Third Circuit, arguing that the business would face irreparable injury because the non-compete agreement with Berg Liquor would deprive Total Liquor of the alcohol products needed to continue their business.[12] In disagreement with Total Liquor, Berg Liquor argued that the district court’s judgement should be affirmed because Total Liquor’s injury is not irreparable due to its ability continue to generate revenue from alcohol distribution.[13]

The Third Circuit vacated and remanded the district court’s decision because the non-compete agreement between the parties was not adequately considered in determining if Total Liquor would face irreparable harm.[14] For a business to experience irreparable harm, it is not enough for it to face economic injuries, rather the business must present “concrete evidence” that it will go bankrupt or fail.[15] The Third Circuit is persuaded by Total Liquor’s argument that it will fail because the non-compete agreement between the parties extremely limits Total Liquor’s ability to continue its business of distributing alcohol since it is unlikely for Total Liquor to find an alcohol manufacturer that is not a competitor of Berg Liquor.[16] Accordingly, the Third Circuit vacated and remanded the decision for the New Jersey district court to reconsider Total Liquor's showing of irreparable harm.[17] The district court will reconsider the evidence presented by Total Liquor and determine whether such evidence is enough to show that Total Liquor will suffer irreparable harm without a preliminary injunction.[18]

For the court to issue a preliminary injunction, the party seeking the injunction must establish “(1) the likelihood of success on the merits; (2) the risk of irreparable injury absent preliminary relief; (3) the balance of equities; and (4) the public interest.”[19] According to the Third Circuit, mere economic injury is not irreparable harm.[20] However, the risk of failure or bankruptcy without a preliminary injunction may be irreparable harm and support the issuance of a preliminary injunction.[21]