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Third Circuit Reverses Preliminary Injunction in Mooncake Distribution Case

Table top view of spicy food.

Top looking down at restaurant food spread on table.

An opinion was issued by Judges Greenaway, Jr., Matey, and Nygaard of the Third Circuit earlier this month in a case filed by Golden Fortune Import & Export Corporation against defendants Mei-Xin Limited and Maxim Caterers Limited.

The plaintiff is a distributor of Asian groceries, per the court, and the defendant Mei-Xin is a manufacturer of mooncakes that are renowned internationally.

Upon expanding its business into the U.S., Mei-Xin came to an agreement with the plaintiff, under which the plaintiff would be responsible for distributing products and developing a market for the Mei-Xin brand in the United States, the opinion said, which propelled the brand to success in the eastern region of the country.

After a significant decline in annual sales growth, Mei-Xin sought to terminate the agreement. However, Golden Fortune asserted that the termination was insufficient under the terms of the agreement. A second notice of termination led Golden Fortune to claim that the termination was invalid under the New Jersey Franchise Practices Act, or NJFPA, which prohibits franchisors from terminated a franchise without good cause. Golden Fortune alleged that Mei-Xin’s attempt to terminate the agreement “failed to satisfy the good cause requirement.”

Golden Fortune filed suit against Mei-Xin, citing a violation of the NJFPA, breach of the implied covenant of good faith and fair dealing, and tortious interference. The plaintiff also filed a motion for a preliminary injunction seeking to prevent the defendants from terminating the distributor agreement. When this motion was granted by the district court, the defendants appealed to the Third Circuit.

The circuit court overturned the injunction on appeal, explaining that the plaintiff had not “shown a likelihood of success on the merits or that it will more likely than not suffer irreparable harm in the absence of the grant of a preliminary injunction.”

The three-judge panel further contended that the plaintiff did not have a high likelihood of success in their case since they did not share a requisite community of interest with the defendants and the defendants did not make up more than 20% of their annual gross sales.

The plaintiff was represented in the litigation by Chiesa Shahinian & Giantomasi and A.Y. Strauss, while the defendants were represented by Duane Morris.

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