Opinion
A1202277
06-26-2012
BEECHMONT FORD, INC., et al. Plaintiffs v. TK CARSITES, INC., et al. Defendants
DECISION
This case is before the Court following a hearing on Plaintiffs' Motion for Preliminary Injunction. For the reasons discussed below, the motion is granted.
STANDARD
As stated by the First District Court of Appeals in Procter & Gamble Company v. Stoneham (1st Dist. 2001), 140 Ohio App.3d 260:
The purpose of a preliminary injunction is to preserve a status between the parties pending a trial on the merits. Ordinarily, a party requesting a preliminary injunction must show that (1) there is a substantial likelihood that the plaintiff will prevail on the merits, (2) the plaintiff will suffer irreparable injury if the injunction is not granted, (3) no third parties will be unjustifiably harmed if the injunction is granted, and (4) the public interest will be served by the injunction.(Footnotes and citations omitted). These elements must be proved by clear and convincing evidence.
DISCUSSION
Plaintiffs Beechmont Ford, Lawrenceburg Chevrolet and Lorinn's Used Vehicles ("Dealer Plaintiffs"), entered into contracts with TK Carsites, Inc. Those Agreements were subsequently amended. Plaintiff Mark Williams was not a party to these contracts.
As amended, the Agreements provide:
7. Governing Law.
Section 11.1 is hereby deleted in its entirety and replaced with the following: "In the event the CLIENT initiates litigation Ohio venue is acceptable. If the COMPANY files litigation Governing law reverts back to original document and Orange County, CA venue. This Agreement will be governed and construed in accordance with the laws of the State of Ohio without giving effect to principles of conflict of laws. The parties agree to submit to jurisdiction in Ohio and further agree that any dispute, claim or controversy arising out of or relating to this Agreement shall be finally determined by binding arbitration administered by the Rules of Arbitration of the American Arbitration Association (AAA) in Hamilton County, Ohio, before one (1) arbitrator. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction."
Defendant Kip Prahl Associates ("KPA") initiated arbitration proceedings before the AAA in California against all Plaintiffs. KPA is neither a party to the contracts nor a valid assignee thereunder.
As for assignment, the Contracts provide:
8. Assignment and Delegation.
The first sentence of Section 11.4 is hereby deleted in its entirety and replaced with the following: "This Agreement may not be assigned by either party without the other party's prior written consent. Notwithstanding the foregoing, this Agreement may be assigned by Company to TK Websites, LLC."
The contract was assigned to TK Websites. It, however, is not the party seeking arbitration in California.
The Dealer Plaintiffs agree that arbitration is required by the contracts to resolve the disputes between the parties. They argue, however, that KPA is not a proper party to initiate the arbitration, arbitration may proceed only in Ohio under the terms of the contract, and Plaintiff Williams is not a proper party to any arbitration. The Court agrees.
1. Likelihood of Success on the Merits
The Court finds that the contractual language quoted above is clear and unambiguous as it relates to arbitration (as opposed to litigation). Any dispute shall be determined by binding arbitration in Hamilton County, Ohio. A venue in Orange County comes into play only if TK Carsites files litigation. Defendants argue that the parties used "litigation" and "arbitration" interchangeably. The Court disagrees and finds the language with respect to arbitration clear and unambiguous. Thus, Dealer Plaintiffs are likely to succeed on their claim that arbitration may only proceed in Ohio.
Even more fundamentally, however, even if arbitration could proceed in California KPA is not a party who may bring arbitration. It is neither a party to the contracts nor a valid assignee. Thus, even if the contracts are ambiguous with respect to the use of "litigation" and "arbitration, " KPA is not a party who may demand arbitration anywhere.
Defendants argue that TK Websites is a division of KPA and that KPA is a valid successor in interest to TK Websites. The affidavit of Gabriel Orius states that TK Websites is a wholly owned subsidiary of KPA. TK Websites, however, is a separate legal entity no matter who owns it. The plain language of the Contract requires Plaintiffs to consent to any assignment. There is no evidence that they consented to any assignment to KPA.
In fact, the original contract contained the following language with respect to assignment:
11.4 Assignment and Delegation. This Agreement may not be assigned by Client without Company's prior written consent and unauthorized assignment shall be void. The parties' rights and obligations will bind and inure to the benefit of their respective successors, heirs, executors and administrators and permitted assigns. In its sole discretion, Company may assign this Agreement or subcontract all or a portion of its responsibilities hereunder, and reserves the right to change or substitute third party vendors it uses in connection with the Services.
The parties specifically changed that language to read:
8. Assignment and Delegation.
The first sentence of Section 11.4 is hereby deleted in its entirety and replaced with the following: "This Agreement may not be assigned by either party without the other party's prior written consent. Notwithstanding the foregoing, this Agreement may be assigned by Company to TK Websites, LLC."
Thus, Plaintiffs have established they are likely to succeed on the claim that KPA may not enforce the contracts.
2. Irreparable Harm
Defendants argue that Plaintiffs can show no irreparable harm. They argue that even if Plaintiffs are forced to arbitrate a non-arbitratable dispute, the only damage is monetary. Defendants point to cases that hold the time and expense of arbitration is not irreparable injury.
In this case, it is clear that the Dealer Plaintiffs agreed to arbitrate their disputes under the contract. They argue, however, that they did not agree to arbitrate with KPA and that they agreed to arbitrate only in Ohio. Thus, the question is whether they will suffer irreparable harm if forced to arbitrate with KPA in California.
Plaintiffs cite to Kellogg Brown & Root Services, Inc. v. Altanmia Commercial Marketing, 2007 U.S. Dist. LEXIS 86285 (S.D. Tex. 2007) which examined the split of opinions on the issue as follows:
In the Fifth Circuit, the arbitrability of disputes is a matter of contract law; a court cannot compel a party to arbitrate unless the court determines that the parties agreed to arbitrate the dispute in question. . . As a result, a party cannot be required to submit to arbitration any dispute which he has not agreed to submit. . . However, this circuit has not explicitly held that a party suffers irreparable injury when it is forced to arbitrate issues that it did not agree to arbitrate.
Some courts have reached this result. See, e.g., Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 129 (2d Cir. 2003) (affirming Maryland Casualty Co. v. Realty Advisory Bd. on Labor Relations, 107 F.3d 979, 985 (2d Cir. 1997), in which the court found irreparable harm if a party had to arbitrate an issue that is not arbitrable); McLaughlin Gormley King Co. v. Terminix Intern. Co., LP, 105 F.3d 1192, 1194 (8* Cir. 1997) ("If a court has concluded that a dispute is non-arbitrable, prior cases uniformly hold that the party urging arbitration may be enjoined from pursuing what would now be a futile arbitration, even if the threatened irreparable injury to the other party is only the cost of defending the arbitration and having the court set aside any unfavorable award."); Md. Cas. Co., 107 F.3d at 985 (holding that the Appellee "would be irreparably harmed by being forced to expend time and resources arbitrating an issue that is not arbitrable, and for which any award would not be enforceable"); PaineWebber Inc. v. Hartmann, 921 F.2d 507, 514 (3d Cir. 1990) ("[T]he harm to a party would be per se irreparable if a court were to abdicate its responsibility to determine the scope of an arbitrator's jurisdiction and, instead, were to compel the party, who has not agreed to do so, to submit to an arbitrator's determination of his own authority....A reluctant party has a right to a judicial determination of his obligation to arbitrate.") (overruled on other grounds by Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 82, 123 S.Ct. 588, 154 L.Ed. 2D 491 (2002).
Some courts have found that a party is not irreparably harmed if it is forced to arbitrate a nonarbitrable issue. These courts have reasoned that because the arbitrator's decision on a nonarbitrable issue can be challenged in court, the only cost incurred by the resisting party is a monetary one, which does not impose irreparable harm. See, e.g., Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1112 (11th Cir. 2004) ("Even if the defendants were permitted to proceed with arbitrating nonarbitrable claims, it is unclear how the plaintiffs would suffer any injury at all, much less irreparable injury. The plaintiffs would not have to participate in the defendants' arbitration proceedings. Even if the defendants obtained a default verdict against them, they would be unable to have it enforced in a district court...."); AT&T Broadband, LLC. v. Int'l Brotherhood of Electrical Workers, 317 F.3d 758, 762 (7th Cir. 2003) ("If AT&T loses in the arbitration, the union will seek to enforce its victory; AT&T can defend on the theory that it had not agreed to arbitrate this kind of dispute ....All AT&T could lose ... is the cost of presenting the arguments to the arbitrator, and it has long been established that the expense of adjudication is not irreparable injury."); Tejidos de Coamoa, Inc. v. Int'l Ladies' Garment Workers' Union, 22 F.3d 8, 14 (1st Cir. 1994) ("It is true that participating would cause one form of loss, namely, the time and expense of litigation before the arbitrator. But courts have ordinarily not deemed litigation expense to be substantial and irreparable injury warranting an injunction."); Woodlawn Cemetery v. Local 365, Cemetery Workers and Greens Attendants Union, 930 F.2d 154, 157 (2d Cir. 1991) ("The monetary cost of arbitration certainly does not impose legally recognized irreparable harm.") (citing Emery Air Freight Corp. v. Local Union 295, 786 F.2d 93, 100 (2d Cir. 1986). These cases are distinguishable because they involve clear arbitration clauses in which the parties agreed to arbitrate certain claims and there was a dispute as to the scope of that agreement. In the current case, the parties dispute the threshold issues of whether they agreed to arbitrate any claims related to Subcontract S0040.
The Court found irreparable injury when a party was forced to arbitrate non-arbitrable disputes and seek redress later.
Defendants point to, among other cases, Union Township v. Union Township Professional Firefighters' Local 3412, 2000 WL 189959 (12th Dist. 2000). That case involved a dispute arising out of two firefighters pursuing a grievance arbitration after being terminated by township trustees. While the Court focused most of its attention on whether Plaintiff was likely to succeed on the merits, it did address irreparable harm. The Court Stated:
The Township will not suffer irreparable injury should an injunction not be issued and the case eventually proceeds to arbitration. At most, the Township will be forced to participate in arbitration. The Township may initially contest the arbitrator's jurisdiction pursuant to CBA Section 14.3(A). Should the arbitration award be against the township, it may appeal and challenge the arbitrator's jurisdiction pursuant to R.C. 2711.10(D). Thus, adequate remedies at law exist to alleviate any inconvenience caused to the Township. Nor can the Township claim that it is irreparably harmed by incurring legal fees. The economic consequences of this action are not irreparable harm as the Township may move for attorney fees at a later time, if such fees may be collected from Appellees.
More important, at this state of the proceedings there has yet to be a determination as to whether the CBA mandates arbitration of appellees' grievances, appeal to the court of common pleas, or a choice of these alternatives. At this time, there still remains the reasonable possibility that the trial court, after fully considering the merits of the case, will find that arbitration is not appropriate under the CBA. In such case, the Township will not have suffered any irreparable harm.
Here, of course, the underlying dispute is arbitrable if brought by the proper party. Is there irreparable harm if a party is forced to arbitrate with an entity that has no enforceable arbitration right? The Court finds irreparable harm exists in this narrow circumstance.
3. Harm to Third Parties
Defendants argue they will suffer harm if the injunction is granted. They argue that they will not be able to pursue arbitration in California — the location of their choice. They will, however, be able to pursue arbitration, assuming they are parties to the contract entitled to enforce it. The Court finds that some harm (location of the arbitration) may result to Defendants.
4. Public Interest
The public interest is served by enjoining improper attempts to arbitrate and allowing proper arbitration to proceed.
CONCLUSION
The Court finds that Plaintiffs have met their burden. Defendants are enjoined from further participating or undertaking any further action in the arbitration currently pending in California before the American Arbitration Association in the case styled Kip Prahl & Associates, LLC v. Beechmont Ford, Inc., et al. Case No. 73 117 00084 12 nolg.
The Court further finds that Plaintiffs should be required to post a bond in the amount of $10,000.
The parties are referred to Local Rule 17 for preparation of an Entry. There is no just reason for delay.