The Avon Company v. Fareva Morton Grove, Inc.

Background

The Avon Company, formerly known as New Avon LLC, and LG H&H Company, Ltd. sued Fareva Morton Grove, Inc. and Fareva S.A. over a Manufacturing and Supply Agreement. Under that agreement, Fareva agreed to manufacture, test, and supply most of Avon’s beauty products for a 10-year period, with a possible five-year extension. The agreement limited Fareva’s ability to end the contract early and required Fareva to provide “Transition Support” for up to six months after expiration or termination. That support included continuing to manufacture and supply products while production moved to another supplier, along with assistance involving production processes, personnel training, equipment, and supplier information.

Fareva gave notice of early termination in March 2022, citing an unpaid November 2021 invoice for $621,000. Avon disputed the invoice and later paid it. Fareva nevertheless maintained that the termination would proceed. Fareva later demanded payment of invoices that the parties disputed, as well as other conditions not required by the agreement, before it would fully resume production. After Fareva stopped or limited production, Avon sued and sought emergency relief requiring Fareva to continue manufacturing during the transition.

Preliminary-injunction standard

A preliminary injunction is an order issued before final judgment to prevent harm while a case continues. The court stated that Avon had to show a likelihood of success on its claims, likely irreparable harm without an injunction, a balance of hardships favoring Avon, and that the injunction would serve the public interest.

Court’s analysis

The court applied New York contract law. It found that the parties had a valid agreement and that Avon was likely to show it had performed its obligations. The court determined that Avon’s dispute over certain invoices was made in good faith and involved material amounts. Because the agreement referred to “undisputed” amounts, the court rejected Fareva’s position that Avon had to pay all disputed charges before Fareva had to perform.

The court held that Fareva’s refusal to produce products breached Section 9.2. That section unequivocally required Fareva, during the transition period, to continue manufacturing and supplying products as Avon directed. The court rejected Fareva’s arguments that this duty was conditioned on payment of all outstanding invoices or that the listed transition services excluded continued production. The court did not need to decide whether Section 3.5 separately required Fareva to devote 100 percent of its production capacity to Avon’s outstanding orders.

The court found irreparable harm because Fareva produced virtually all of a substantial number of Avon’s products, and without those products Avon could be unable to remain in business. The court also cited possible permanent losses of customers, goodwill, employment, and sales opportunities. It found that the balance of hardships favored Avon because the injunction would require Fareva to continue performing the agreement for the transition period, while refusing relief could cause Avon’s business to fail. The court also found that enforcing a valid contract and keeping Avon’s products available served the public interest.

Disposition

The court granted Avon’s motion for a preliminary injunction. Fareva was ordered to perform its Section 9.2 obligations, including providing transition assistance and manufacturing and supplying Avon’s products as Avon directed and according to the agreement’s specifications. The injunction applied for up to six months beginning May 1, 2022, and no later than October 31, 2022. It was effective immediately. Avon was required to provide a $10,000 security bond under Federal Rule of Civil Procedure 65(c).