Toyo Tire Holdings of Americas Inc. v. Continental Tire North America, Inc.

                                                                         FILED
                             FOR PUBLICATION                              JUN 17 2010

                                                                      MOLLY C. DWYER, CLERK
                   UNITED STATES COURT OF APPEALS                      U.S. COURT OF APPEALS



                          FOR THE NINTH CIRCUIT


TOYO TIRE HOLDINGS OF                          No. 10-55145
AMERICAS INC., as successor in interest
to TOYO TIRE INTERNATIONAL, INC.,              D.C. No. 8:10-CV-00052-JVS

             Plaintiff-Appellant,
                                               OPINION
  v.

CONTINENTAL TIRE NORTH
AMERICA, INC., as successor in interest
to GENERAL TIRE INC.; YOKOHAMA
CORPORATION OF AMERICA; GTY
TIRE CO.; and DOES 1-100,

             Defendants-Appellees.


                  Appeal from the United States District Court
                     for the Central District of California
                   James V. Selna, District Judge, Presiding

                      Argued and Submitted June 10, 2010
                             Pasadena, California



Before: D.W. NELSON and GOULD, Circuit Judges, and GWIN, * District Judge.



       *
            The Honorable James S. Gwin, United States District Judge for the
Northern District of Ohio, sitting by designation.
                               Opinion by Judge Gwin

GWIN, District Judge:

      Appellant Toyo Tire Holdings of Americas, Inc. (“Toyo”) appeals the district

court’s denial of its motion to enjoin Appellees Continental Tire North America, Inc.

(“Continental”) and Yokohama Corporation of America (“Yokohama”) from

dissolving the parties’ joint venture and from distributing the partnership assets until

an arbitration panel can consider Toyo’s claims. In denying Toyo’s motion for a

preliminary injunction, the district court reasoned that our holding in Simula, Inc. v.

Autoliv, Inc., 175 F.3d 716 (9th Cir. 1999), precluded granting injunctive relief when

the parties have agreed to arbitrate and the arbitration panel has the power to issue

injunctive relief. Because we believe that the district court incorrectly concluded that

Simula controls in the present circumstances, we reverse and remand for the district

court to consider the merits of Toyo’s request for a preliminary injunction.

                                            I

      Toyo, Continental, and Yokohama all manufacture and distribute tires. In 1988,

Continental’s predecessor General Tire, Inc., Toyo, and Yokohama formed a general

partnership, Appellee GTY Tire Co. (“GTY”). GTY manufactures truck and bus

radial tires (“TBR tires”) for each of the partners to distribute.




                                           2
       The 1998 Partnership Agreement contains an arbitration clause that says in

pertinent part: “Failing . . . amicable resolution all disputes arising in connection with

this Partnership Agreement or any other Basic Document shall be finally settled by

arbitration. . . . All arbitration shall be conducted . . . in accordance with the Rules of

Conciliation and Arbitration of the International Chamber of Commerce by three

arbitrators appointed in accordance with such Rules.” As hereafter described, those

International Chamber of Commerce Rules allow judicially imposed interim relief,

including injunctive relief.

       On December 22, 2009, Continental and Yokohama sent Toyo a letter saying

they would dissolve the partnership at the end of 2009. In the letter, Continental and

Yokohama said that Toyo had agreed to a collaboration agreement with Bridgestone

Corporation, a competitor. Continental and Yokohama said Toyo’s relationship with

Bridgestone gave them the right to dissolve the joint venture under the Partnership

Agreement and a 1990 Amendment thereto. Continental and Yokohama indicated

that, pursuant to the Partnership Agreement, they could acquire Toyo’s 2010 share of

TBR tires and could enforce a non-competition clause that would prohibit Toyo from

selling non-GTY TBR tires in North America for five years.

       At Toyo’s request, Continental and Yokohama agreed to a January 8, 2010,

meeting of the general partners and temporarily suspended the notice of dissolution.


                                            3
At the meeting, Continental and Yokohama said they intended to dissolve the

partnership, effective January 13, 2010, and that they planned to take Toyo’s entire

allocation of GTY tires. On January 9, 2010, Toyo wrote to Continental and

Yokohama, stating that it believed it had a right to purchase TBR tries from GTY for

the current and two following fiscal years, even if the partnership was dissolved.

Neither Continental nor Yokohama responded.

      On January 11, 2010, Toyo requested arbitration with the International

Chamber of Commerce (“ICC”) International Court of Arbitration. Within its Request

for Arbitration, Toyo requested interim injunctive relief.

      On the same day, Toyo sued Continental, Yokohama, and GTY.1 With its

Complaint, Toyo brings claims for breach of contract, breach of fiduciary duty, breach

of the duty of loyalty, breach of the covenant of good faith and fair dealing, violation

of California’s fair business practices law, tortious interference with business

relations, and slander.

      On January 14, 2010, Toyo asked the district court for a preliminary injunction

to prevent the Appellees from: (1) terminating Toyo’s status as a partner in GTY, (2)

disrupting GTY’s supply of TBR tires to Toyo, and (3) making false, disparaging,

      1
        Toyo initially sued the Defendants-Appellees in the Orange County
Superior Court. On January 13, 2010, the Defendants removed the case to the U.S.
District Court for the Central District of California.

                                           4
inflammatory, or other defamatory statements to Toyo’s customers or other third

parties regarding Toyo’s assets, the partnership, or Toyo’s ability to supply tires.

Toyo also moved for a temporary restraining order.

      On January 25, 2010, the district court heard argument and orally denied Toyo’s

motion for a preliminary injunction. At that hearing, the district court gave clear

indication that injunctive relief should be given unless Simula foreclosed such relief.2

The district court concluded that our opinion in Simula created a “blanket judgment”

that a district court may not grant a preliminary injunction when the parties have




      2
      At the hearing, the district court described its views regarding the merits of
Toyo’s application for injunctive relief:

      [I]t seems to me at a minimum there is a serious question with regard
      to the legal claims that Toyo puts forward with respect to its breach of
      contract, breach of the covenant of good faith and fair dealing, breach
      of the duty of loyalty, and the interference claims. It seems to me that
      the disruption of a 290,000 unit supply agreement is serious and
      causes the balance of hardships to tip substantially in favor of plaintiff
      Toyo. I’m less convinced that there is an equally serious question with
      regard to the defamation claim, but it seems to me that the expulsion
      from the partnership and termination of the distribution arrangement
      seriously tips the balance of hardships in favor of Toyo. I believe that
      the termination of the distribution also presents an adequate showing
      of irreparable harm for the present purposes. Given those facts, I think
      that the public interest would be served by issuing an injunction. My
      big stumbling block is to whether under Simula [] the Court has any
      room to issue an injunction.

                                           5
agreed to arbitrate and the arbitrator has the power to grant interim injunctive relief.

Finding that Simula controlled this case, the district court denied Toyo’s motion.

      Toyo now appeals that denial. We have jurisdiction under 28 U.S.C. §

1292(a)(1) and we reverse.

                                           II

      We review the district court’s denial of a preliminary injunction for an abuse

of discretion. N.D. ex rel. Parents Acting as Guardians Ad Litem v. Hawaii Dep’t of

Educ., 600 F.3d 1104, 1111 (9th Cir. 2010). Under this standard, we first determine

de novo whether the trial court identified the correct legal rule to apply to the relief

requested. United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en

banc). If the trial court applied an incorrect legal standard, we must conclude that it

abused its discretion. Id. at 1262. If the trial court applied the correct legal standard,

we reverse only when the district court reaches a result that is illogical, implausible,

or without support in the record. N.D., 600 F.3d at 1111.

       Because we find that the district court incorrectly applied Simula, we conclude

that the district court abused its discretion in denying the Appellant’s motion for a

preliminary injunction, and we reverse and remand.

                                           III




                                            6
      The Appellant argues that the district court abused its discretion by erroneously

reading our decision in Simula, Inc. v. Autoliv, Inc., 175 F.3d 716 (9th Cir. 1999), to

deprive it of the authority to grant injunctive relief to maintain the status quo pending

arbitration. We agree.

      In both Simula and in the case before us, the parties agreed to arbitrate in

accordance with the Rules of Arbitration of the International Chamber of Commerce

(“ICC Rules”). The ICC Rules provide in relevant part:

                   Article 23 Conservatory and Interim Measures

      (1) Unless the parties have otherwise agreed, as soon as the file has been
      transmitted to it, the Arbitral Tribunal may, at the request of a party,
      order any interim or conservatory measure it deems appropriate. . . .

      (2) Before the file is transmitted to the Arbitral Tribunal, and in
      appropriate circumstances even thereafter, the parties may apply to any
      competent judicial authority for interim or conservatory measures. The
      application of a party to a judicial authority for such measures or for the
      implementation of any such measures ordered by an Arbitral Tribunal
      shall not be deemed to be an infringement or a waiver of the arbitration
      agreement and shall not affect the relevant powers reserved to the
      Arbitral Tribunal. Any such application and any measures taken by the
      judicial authority must be notified without delay to the Secretariat. The
      Secretariat shall inform the Arbitral Tribunal thereof.

ICC Rules Article 23 (emphasis added). On its face, Article 23 of the ICC Rules

provides that (1) once the file has been transmitted to it, an arbitral panel may order

interim injunctive relief at the request of a party and (2) “any competent judicial



                                           7
authority” may order interim injunctive relief before the file is transmitted to the panel

and “in appropriate circumstances even thereafter.”

      Despite Article 23(2) of the ICC Rules, the district court concluded that Simula

foreclosed its ability to grant injunctive relief in this case. However, in Simula we did

not discuss whether a court may grant interim relief to maintain the status quo while

the parties are waiting for the arbitration panel to be formed and for the arbitration

panel to consider whether to grant interim relief. Instead, in Simula, the appellant

argued that the arbitral forum would be unable to provide it meaningful relief and

attempted to avoid arbitration by seeking injunctive relief in the district court. After

considering Article 23(1) of the ICC Rules, we determined that Simula was wrong

when it argued that the arbitrators could not grant preliminary relief. We thus

concluded that the district court did not abuse its discretion when it denied preliminary

injunctive relief after finding that all of Simula’s claims were arbitrable and the

arbitral tribunal had the power to grant the injunctive relief that Simula sought. 175

F.3d at 725-26.

      Importantly, Simula involved claims completely different from the claims in

this case. Simula concerned a developer of safety technologies that claimed that an

auto parts supplier stole its ideas, violated its trademark, and restrained trade in

violation of the Sherman Act, 15 U.S.C. §§ 1, 2. Id. at 719. Simula argued “that


                                            8
preliminary injunctive relief should have been granted by the district court because the

arbitrators cannot grant such relief.” Id. at 725. Against this backdrop, we held that

the district court did not err in denying injunctive relief. First, and contrary to

Simula’s position, the arbitration panel did have power to afford the interim relief

Simula sought. Second, nothing suggested any imminent need for injunctive relief to

maintain the status quo until an arbitration panel could address Simula’s request for

interim relief.

       Here, by contrast, Appellant Toyo says the district court should afford

injunctive relief because the Appellees are denying Toyo its right to purchase nearly

290,000 tires, or 60% of its North American supply of TBR tires, after Toyo had

purchased tires from GTY for over twenty years. In addition, Toyo says the Appellees

are attempting to stop Toyo from purchasing tires from other suppliers for distribution

in North America.

       In contrast to Simula, Toyo seeks an injunction to preserve the status quo until

the arbitral panel can consider and rule upon Toyo’s application for interim relief

pending the arbitration panel’s final decision. Allowing a district court to grant this

type of relief is not contrary to the “emphatic federal policy in favor of arbitral dispute

resolution” of primary concern in Simula. See 175 F.3d at 726. To the contrary, in




                                            9
cases such as this, judicial interim relief may be necessary to preserve the

meaningfulness of the arbitral process. See Section IV, infra.

      Thus, in Simula we did not decide the question presented here–whether a court

may grant interim relief pursuant to Article 23(2) of the ICC Rules to maintain the

status quo while the parties are awaiting the creation of an arbitration panel and a

decision by that panel with respect to injunctive relief. Therefore, the holding of

Simula is not binding in this case.

                                           IV

      In PMS Distributing Co. v. Huber & Suhner, A.G., we recognized that “the

congressional desire to enforce arbitration agreements would frequently be frustrated

if the courts were precluded from issuing preliminary injunctive relief to preserve the

status quo pending arbitration and, ipso facto, the meaningfulness of the arbitration

process.” 863 F.2d 639, 641-42 (9th Cir. 1988) (quoting Teradyne, Inc. v. Mostek

Corp., 797 F.2d 43, 51 (1st Cir. 1986)). We thus held in PMS that a district court has

authority to issue equitable relief in aid of arbitration. Id. at 642.

      The importance of the courts’ ability to issue interim injunctive relief is even

more apparent now than when we decided PMS twenty-two years ago. We assume

that parties ordinarily choose to arbitrate, inter alia, to lower costs and increase

efficiency and speed. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct.


                                           10
1758, 1775 (2010). However, arbitration’s promised speed and efficiency frequently

do not materialize in practice. See Bruce M. Selya, Arbitration Unbound?: The

Legacy of McMahon, 62 Brook. L. Rev. 1433, 1446-47 (1996) (describing arbitration

process as becoming “increasingly litigious,” resulting in shrinking margins of savings

in time and cost between arbitration and litigation).

      Moreover, one party to the arbitration often has an incentive to delay arbitration

proceedings to its own advantage. See, e.g., Int’l Union of Petroleum & Indus.

Workers v. W. Indus. Maint., Inc., 707 F.2d 425, 428 (9th Cir. 1983) (upholding award

of attorney’s fees against party who refused to abide by arbitrator’s award to deter

“frivolous dilatory tactics [which] not only den[y] the individual prompt redress, [but

also] threaten[] the goal of industrial peace”); Engalla v. Permanente Med. Group,

Inc., 938 P.2d 903, 969 (Cal. 1997) (finding evidence that defendant insurance

company delayed appointment of neutral arbitrator until after plaintiff’s death,

resulting in merger of surviving spouse’s loss of consortium and malpractice claims

and reducing defendant’s potential liability).

      Even without bad faith by either party, the selection of arbitrators and the

constitution of the arbitral panel necessarily takes time. Under the district court’s

interpretation of Simula, parties would be without remedy when, as here, the delay

associated with securing an arbitration panel’s ruling on interim relief could defeat


                                          11
any ultimate award. If Toyo loses its customers before interim relief is possible, any

subsequent relief could be useless. As recognized in PMS, the unavailability of

interim conservatory measures can frustrate the arbitration process. See 863 F.2d at

641-42.

      Moreover, Article 23(2) of the ICC Rules provides that “[b]efore the file is

transmitted to the Arbitral Tribunal, and in appropriate circumstances even thereafter,

the parties may apply to any competent judicial authority for interim or conservatory

measures.” ICC Rules, Article 23(2). Thus, the very rules that the parties agreed

would govern their arbitration proceedings allow a party to request the relief that

Appellant Toyo seeks in this case. And the same rules allow a party to seek interim

or conservatory relief before the file is transmitted to the Arbitral Tribunal, “and in

appropriate circumstances even thereafter.”

      Accordingly, we conclude that a district court may issue interim injunctive

relief on arbitrable claims if interim relief is necessary to preserve the status quo and

the meaningfulness of the arbitration process–provided, of course, that the

requirements for granting injunctive relief are otherwise satisfied. This holding is

consistent with our rulings in PMS and Simula, as well as the holdings of a majority

of our sister circuits. See Performance Unlimited, Inc. v. Questar Publishers, Inc., 52

F.3d 1373, 1377-80 (6th Cir. 1995) (reversing district court’s denial of preliminary


                                           12
injunction and joining other circuits in holding that district courts have subject matter

jurisdiction under the Federal Arbitration Act (“FAA”) to grant preliminary injunctive

relief pending arbitration); Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

910 F.2d 1049, 1052-54 (2d Cir. 1990) (federal district court has power to issue

injunction pending arbitration, even absent express contractual language so

providing); Ortho Pharm. Corp. v. Amgen, Inc., 882 F.2d 806, 813-14 (3d Cir. 1989)

(district court has jurisdiction to issue injunctive relief pending arbitration, provided

movant satisfies traditional four-pronged test); Merrill Lynch, Pierce, Fenner & Smith,

Inc. v. Dutton, 844 F.2d 726, 726-28 (10th Cir. 1988) (affirming district court’s grant

of preliminary injunction to preserve status quo until arbitration panel takes

jurisdiction); Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 47-51 (1st Cir. 1986)

(“We hold, therefore, that a district court can grant injunctive relief in an arbitrable

dispute pending arbitration, provided the prerequisites for injunctive relief are

satisfied. We believe this approach reinforces rather than detracts from the policy of

the Arbitration Act . . . .”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bradley,

756 F.2d 1048, 1050-55 (4th Cir. 1985) (“We do not believe that Congress would

have enacted a statute intended to have the sweeping effect of stripping the federal

judiciary of its equitable powers in all arbitrable commercial disputes without

undertaking a comprehensive discussion and evaluation of the statute’s effect.


                                           13
Accordingly, we conclude that the language of § 3 [of the FAA] does not preclude a

district court from granting one party a preliminary injunction to preserve the status

quo pending arbitration.”); Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d

348, 351-52 (7th Cir. 1983) (reversing district court’s denial of injunctive relief

pending arbitration pursuant to ICC Rules). But see Peabody Coalsales Co. v. Tampa

Elec. Co., 36 F.3d 46, 47-48 (8th Cir. 1994) (district court may issue injunctive relief

in arbitrable dispute only if contract contains “qualifying language” that permits such

relief and only if such relief can be granted without addressing merits).

      We therefore hold that the district court erred by finding as a matter of law that

it lacked the power to grant injunctive relief in this case.

                                            V

      A plaintiff seeking a preliminary injunction must establish (1) that he is likely

to succeed on the merits, (2) that he is likely to suffer irreparable harm in the absence

of preliminary relief, (3) that the balance of equities tips in his favor, and (4) that an

injunction is in the public interest. Winter v. Nat’l Res. Def. Council, Inc., 129 S. Ct.

365, 374 (2008). In denying Toyo’s motion for a preliminary injunction, the district

court only considered “whether under the existing Ninth Circuit authority, the Court

has the power to grant a preliminary injunction on the facts of this case.” While the




                                           14
district court made some comments regarding the Winter factors, it explicitly declined

to make findings with respect to any of these factors.

      While we are concerned that Toyo faces an increasing chance of suffering

irreparable injury as time passes, and have considered granting temporary injunctive

relief ourselves, we conclude that the proper course in this case is to remand. The

district court intimated but did not make specific findings with respect to any of the

Winter factors. We thus could not grant Toyo’s requested injunctive relief without

conducting a de novo assessment of the factors on the limited evidentiary record

before us. In such a situation, we believe the more appropriate course is to remand the

case to the district court to consider Toyo’s preliminary injunction request under the

Winter standard. See Sierra Forest Legacy v. Rey, 577 F.3d 1015, 1023 (9th Cir.

2009) (concluding that district court applied wrong legal standard and remanding case

to district court to “exercise its discretion” in light of correct standard). However, in

light of Toyo’s repeated assertions that it will suffer an irreparable harm if injunctive

relief is not quickly provided, we direct the district court to consider Toyo’s motion

for injunctive relief as expeditiously as possible.

                                           VI

      Finally, we note that the Appellees have moved this Court to dismiss this

appeal, arguing that this case has become moot because the ICC has now constituted


                                           15
the arbitral panel. “In general a case becomes moot when the issues presented are no

longer ‘live’ or the parties lack a legally cognizable interest in the outcome.” Murphy

v. Hunt, 455 U.S. 478, 481 (1982) (per curiam) (quotation marks and citations

omitted). “This court has an obligation to determine whether a case presents a live

controversy, and is precluded from entering judgment in an appeal that has been

rendered moot.” Granados-Oseguera v. Mukasey, 546 F.3d 1011, 1014 (9th Cir.

2008) (per curiam).

      We conclude that we continue to have subject matter jurisdiction over the case

for the following reasons: Article 23(2) provides that parties may seek interim relief

from a court “[b]efore the file is transmitted to the Arbitral Tribunal, and in

appropriate circumstances even thereafter” (emphasis added). The arbitrators have

not yet issued a ruling on Toyo’s request for injunctive relief. Toyo at this time still

has a need for interim relief pending the arbitrators’ ruling on the issue. Accordingly,

we hold that the appeal is not moot.

                                          VII

      We conclude that the district court’s denial of the preliminary injunction was

based on application of an incorrect legal standard, and therefore an abuse of

discretion. Accordingly, we reverse and remand for the district court to properly

weigh the appropriate factors.


                                          16
      The mandate shall issue forthwith. Petitions for rehearing and rehearing en

banc will be received and treated in the ordinary course. The panel reserves

jurisdiction to review further emergency motions or appeals on this subject.

      REVERSED and REMANDED.




                                        17
                                    Counsel

      Steven B. Kinnaird and Joseph R. Profaizer, Paul, Hastings, Janofsky & Walker

LLP, Washington, DC, and Donna M. D’Angelo Melby and Daniel Prince, Paul,

Hastings, Janofsky & Walker LLP, Los Angeles, California, for the Plaintiff-

Appellant.

      Leslie M. Werlin and Sidney K. Kanazawa, McGuire Woods LLP, Los

Angeles, California, and Mitchell G. Blair and Maura L. Hughes, Calfee Halter &

Griswold LLP, Cleveland, Ohio, for Defendant-Appellee Continental Tire North

America, Inc.

      Richard W. Lasater II, Leila Nourani, and Michael B. McCollum, Foley &

Lardner LLP, Los Angeles, California, for Defendant-Appellee Yokohama

Corporation of America.




                                        18