By Michelle Casady

Law360 (May 5, 2020, 9:35 PM EDT) -- Sephora will get a chance to undo a temporary restraining order that keeps it locked into an operating agreement with J.C. Penney, after the beauty brand told a Texas federal court that the order was procured by "improper means" based on a "fanciful, one-sided narrative" it didn't have a chance to refute.

On Tuesday, U.S. District Judge Amos L. Mazzant III set a Friday hearing on Sephora's emergency motion to dissolve the temporary restraining order.

J.C. Penney won the order in a dispute between the retailers stemming from employee furloughs and reopening amid the coronavirus pandemic. The order was issued by a Collin County District Court judge on April 27, before the case was removed to federal court by Sephora on Monday, and it prohibits Sephora from pulling out of a long-term agreement to operate mini-stores inside hundreds of J.C. Penney Corp. Inc. locations.

Sephora argued in the emergency motion it filed on Monday that J.C. Penney made numerous misrepresentations to the court in order to procure the favorable order, and that it wasn't even given notice about the hearing on what it calls the "ex parte temporary restraining order."

Because of the longstanding business relationship between the parties, Sephora said it has been in "regular, near-daily contact" with J.C. Penney for weeks, but received no notice that J.C. Penney would be filing a lawsuit or seeking an injunction.

"Acting by stealth, JCP manufactured a false impression of Sephora as supposedly attempting to use minor grievances to suddenly pull from JCP the ability to sell any beauty products," Sephora argued. "JCP was able to maintain that illusion only because JCP deprived Sephora of an opportunity to be heard. In reality, the only 'threat' Sephora made was to begin a long termination process based on independent defaults, in exact compliance with the agreement, that would have no immediate effect or impose any imminent harm on JCP's business, and which the parties had already been negotiating."

J.C. Penney has asked for a declaratory judgment barring Sephora from prematurely ending a 16-year agreement that places Sephora stores inside about 600 J.C. Penney locations. The Texas-based retail giant claims Sephora threatened to pull out of the agreement after J.C. Penney decided to furlough its associates during temporary store closures and refused to use a specific cleaning spray in its reopened stores.

Sephora allegedly expressed dissatisfaction about the furlough and claimed in email correspondence that J.C. Penney had breached their agreement, according to court documents.

J.C. Penney attached an email from Sephora USA's CEO Jean-André Rougeot, to J.C. Penney CEO Jill Soltau in which Rougeot predicted further financial hardship for J.C. Penney and pushed to "wind down" their working relationship. Rougeot said in the email that the Sephora inside J.C. Penney concept "is at the end of the road."

J.C. Penney claims that Sephora suggested on April 14 that it was interested in negotiating an end to the contract establishing the mini-stores, but that Sephora never started the prescribed process, which involves first referring the matter to an operating committee that oversees the partnership and then to a senior operating committee if the first committee can't agree on a resolution. If an impasse is declared by the senior operating committee, the dispute must head to binding arbitration, according to the lawsuit.

Sephora instead allegedly made an "explicit threat" on April 24 that if J.C. Penney did not agree to shortening the agreement, Sephora would terminate the partnership, according to court documents.

But Sephora argued that J.C. Penney misrepresented the communications between the retailers, and told the court it never threatened to immediately shut down its mini-stores and had no power to do so under the parties' agreement. Instead, Sephora said the only "threat" it ever made was that the parties continue to negotiate "an agreed, accelerated end" to the agreement."

The parties did not immediately return messages seeking comment.

J.C. Penney is represented by Jeremy A. Fielding and Michael Kalis of Kirkland & Ellis LLP.

Sephora is represented by C. Scott Jones and M. Taylor Levesque of Locke Lord LLP and Robert E. Shapiro, Joshua W. Mahoney, Nicholas W. Laird and David B. Lurie of Barack Ferrazzano Kirschbaum & Nagelberg LLP.

The case is J.C. Penney Corp. Inc. v. Sephora USA Inc., case number 4:20-cv-00364, in the U.S. District Court for the Eastern District of Texas.

--Additional reporting by Katie Pohlman. Editing by Nicole Bleier.

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