NACCO Materials Handling Group, Inc. v. Toyota Materials Handling USA, Inc.NACCO Materials Handling Group, Inc. v. Toyota Materials Handling USA, Inc.
NACCO Materials Handling Group, Inc. d/b/a/ Yale Materials Handling Corporation (hereinafter “NACCO“) initially sued Toyota Materials Handling USA, Inc. (hereinafter “Toyota“) for unlawful procurement of breach of NACCO and The Lilly Company‘s (hereinafter “Lilly“) dealer agreement, and applied to the trial court for a declaration clarifying the terms of NACCO and Lilly‘s contract. As litigation progressed, NACCO sought to terminate its contracts granting Lilly‘s Memphis and Nashville area dealerships before the contracts’ terms expired. Lilly moved to enjoin NACCO from prematurely terminating the contracts, and the trial court granted Lilly a preliminary injunction to that effect on November 23, 2004, 366 F.Supp.2d 597. NACCO planned not to renew either of Lilly‘s contracts when the terms expired. Lilly moved the trial court to enjoin NACCO from refusing to renew the contracts during the pendency of the litigation. On June 30, 2005, the trial court enjoined NACCO from terminating either contract on the date the term expired in an attempt to preserve the status quo while the trial court determined whether preliminary relief prohibiting nonrenewal was appropriate. On October 17, 2005, the trial court entered an Order granting Lilly an injunction to prevent the nonrenewal of the contract for the Nashville dealership, but declined to enjoin the nonrenewal of the Memphis dealership.
In Appeal Number 05-5027, NACCO appeals the propriety of the trial court‘s November 23, 2004, injunction. In Appeal Number 05-6225, NACCO appeals the propriety of the trial court‘s June 30, 2005, Order, particularly the court‘s decision to enter an injunction without considering NACCO‘s bond request. In Appeal Number 05-6700, Lilly appeals the trial court‘s October 17, 2005, decision to allow NACCO‘s nonrenewal of the Memphis dealership. In Appeal Number 05-6739, NACCO appeals the trial court‘s October 17, 2005, decision to enjoin NACCO from nonrenewal of Lilly‘s Nashville dealership.
BACKGROUND
NACCO manufactures both Yale and Hyman forklifts. For over fifty years, Lilly has sold Yale brand forklifts. While Lilly did not always sell other brands of forklifts, it was not specifically bound to sell exclusively Yale forklifts by previous contracts. Lilly also operated a Yale forklift repair business. Lilly employed many experienced workers who specialized in the repair of Yale forklifts and ordered its repair parts from NACCO at a much lower price than it could obtain through a general commercial supplier of Yale forklift parts. Generally, NACCO and Lilly renewed their previous contracts without significant alterations. In 1992, however, NACCO redrafted their contract and developed the Dealer Marketing Agreement (hereinafter “DMA“), the form of contract presented to new Yale dealers; NACCO did not require veteran Yale dealers to alter their contracts.
In 1996, Lilly had the opportunity to expand its dealership territory to include the Memphis region. NACCO granted Lilly the Memphis sales territory, and Lilly signed a DMA for that dealership in 2002. NACCO also asked Lilly to sign a nearly identical DMA governing the contract for Lilly‘s Nashville dealership. Lilly neither negotiated nor objected to the new contracts; instead, Lilly claims that it had no choice but to sign the agreement if it chose to expand its dealerships. Unlike the previous contracts between Lilly and NACCO, the DMAs for Lilly‘s Nashville and Memphis dealerships included a Best Efforts Provision, a Business Ethics Provision, and an Exclusivity Provision. The
Not all NACCO dealers were subject to the requirements of the DMAs signed by Lilly. Some veteran Yale dealers, like Lilly, originally opted not to sign a DMA. Other Yale dealers had recently contracted with NACCO, and were on course to becoming exclusive NACCO dealers. To ease the transition, NACCO specially negotiated contracts with these dealers allowing them to sell forklifts and parts from Yale‘s competitors concurrent with their sale of Yale products for a limited period of time. One Yale dealer, Inslee McEntee, has sold both Yale and competing products throughout its decades-long relationship with Yale. NACCO manufactures and markets forklifts under the brand name of Hyster, in addition to its Yale forklifts. NACCO‘s policy regarding contracts to Hyster dealers does not require that the dealers refrain from selling competing brands of forklifts.
In 2003, Lilly found that a Toyota dealership in the Memphis area might be available for purchase. Between March, 2003, and July, 2003, Lilly engaged in discussions with Toyota representatives to take over the sales of Toyota forklifts in the Memphis region, in addition to operating their Yale dealership. In March, 2003, NACCO caught wind of Lilly‘s contact with Toyota and questioned whether Lilly was considering a contract with Toyota. Lilly did not tell NACCO of its contact with Toyota at that time. On July 3, 2003, NACCO again questioned Lilly about its relationship with Toyota. Again, Lilly did not disclose any information about its dealings with Toyota. On July 7, 2003, NACCO contacted Lilly, and Lilly assured Yale that it was not planning to become a Toyota dealer, even if it did purchase Toyota assets. On July 9, 2003, a letter of Intent to Purchase a Toyota forklift dealership was signed by Lilly. On July 21, 2003, representatives from Yale met with Lilly representatives to discuss Lilly‘s dealings with Toyota. At that time, Lilly disclosed that they had spoken with Toyota, but had made no decisions whether to purchase a Toyota dealership. NACCO warned Lilly that, if it signed a contract to become a Toyota dealer, it would be in breach of the DMA Exclusivity Provision and that NACCO would sue Lilly and its officers for estimated large sums of money. NACCO filed a brief Complaint against Lilly for breach of the DMA, which was removed to federal court in late July, 2003, but indicated it would dismiss the Complaint if Lilly did not pursue a relationship with Toyota. On August 1, 2003, Lilly officially signed a Dealership Agreement to sell Toyota forklifts in addition to Yale forklifts, and informed NACCO of its decision to become a Toyota dealer on July 31, 2003. Lilly was authorized to sell Toyota forklifts at a profit in areas of Arkansas, the entire state of Mississippi, and a region of Tennessee surrounding Memphis. On August 1, 2003, NACCO amended its Complaint in the action for a declaration of contract terms and unlawful procurement in breach of contract underlying the injunctions appealed here. The Complaint specifically
NACCO also points out that Lilly may have breached the DMAs’ Business Ethics Provisions before it signed a contract with Toyota. Lilly, in violation of the DMAs, sold Yale parts in Mexico, and continued making these sales despite NACCO‘s objections. Lilly also collected a sales incentive award from NACCO under false pretenses. Lilly received one hundred forklift trucks, purportedly for sale to AutoZone. This order qualified Lilly for a $28,000 sales incentive. The trucks, however, were never sold to AutoZone; yet Lilly kept the sales incentive.
The terms of the DMAs for Lilly‘s Nashville and Memphis dealerships expired on July 2, 2005. NACCO sought to terminate Lilly‘s dealership contracts before the terms had run because of breach of the contract‘s Exclusivity Provision. In particular, NACCO claimed that, as a dealer for a competing forklift brand, Lilly should no longer be privy to NACCO‘s marketing strategies for Yale forklifts. Furthermore, NACCO claimed that Lilly had violated the Best Efforts Provisions of the DMAs by diverting sales staff and energy to the marketing of Toyota forklifts. Also, NACCO asserted that Lilly violated the Business Ethics clause of the DMA by failing to give NACCO full information of its negotiations with Toyota before the Toyota contract was signed. NACCO claimed that these breaches were so significant that NACCO should be allowed to terminate the contract before its term expired. On August 1, 2003, immediately after confirming Lilly‘s choice to become a Toyota dealer, NACCO sent Lilly a Notice of Termination.
Lilly sought a preliminary injunction to prevent the early termination of the DMAs. According to Lilly, any interruption of its right to sell Yale forklifts and repair forklifts using Yale parts would irreparably damage Lilly‘s business by alienating its customer base, dissipating its established goodwill, and making termination of experienced Yale forklift repair specialists necessary. On November 23, 2004, the trial court granted Lilly injunctive relief preventing NACCO from terminating the Memphis and Nashville DMAs before their set expiration dates. NACCO‘s appeal of that Order is before this panel in Appeal Number 05-5027. NACCO moved that Lilly should pay a bond on the preliminary injunction to protect NACCO if it is ultimately found that NACCO could have lawfully terminated or refused to renew Lilly‘s dealership. While Lilly responded to this motion, the trial court did not ultimately address the merits of NACCO‘s bond request in any later opinion or hearing.
NACCO also sent three nonrenewal notices to Lilly. NACCO stated in the notices that it would not renew the contract because of Lilly‘s choice to sell competing forklift brands in breach of the contract. NACCO also informed Lilly that it had good cause to refuse to renew the DMAs because of Lilly‘s breaches of the Business Ethics and Best Efforts clauses of the contracts. Lilly was given sixty days to cure any breaches of the DMA. Lilly again sought pretrial relief to enjoin NACCO
The trial court issued an opinion on October 17, 2005, partially granting Lilly‘s request for a preliminary injunction. At that time, the trial court enjoined NACCO from refusing to renew the DMA for Lilly‘s Nashville dealership during the pendency of the litigation. The trial court also found, however, that NACCO was free to decline renewal of the DMA allowing Lilly to operate its Memphis dealership. Lilly appeals the trial court‘s decision to allow NACCO to decline renewal of the Memphis DMA in Appeal Number 05-6700. NACCO appeals the trial court‘s decision to enjoin nonrenewal of the Nashville DMA in Appeal Number 05-6739. Furthermore, NACCO asserts throughout its appeals that it has suffered damages from the trial court‘s Orders previously enjoining NACCO from terminating or refusing to renew the DMA for Lilly‘s Nashville dealership. According to NACCO, the trial court‘s refusal to consider the issuance of a bond failed to protect NACCO from these damages.
ANALYSIS
1. The trial court did not abuse its discretion in its November 23, 2004, Order granting Lilly injunctive relief prohibiting NACCO from terminating the Memphis and Nashville DMAs before their set expirations on July 2, 2005.
a. Standard of Review
In deciding whether to grant a preliminary injunction, a trial court must consider
- whether the movant has a strong likelihood of success on the merits;
- whether the movant would suffer irreparable injury without the injunction;
- whether issuance of the injunction would cause substantial harm to others; and
- whether the public interest would be served by issuance of the injunction.2
b. Merits
Lilly argued that the early termination of its Nashville and Memphis DMAs would irreparably damage its business by harming its goodwill from an established Yale customer base and necessitating the termination of many specially trained Yale repair employees. Furthermore, Lilly argued that it was strongly likely to succeed in this case on the merits and that NACCO will not be injured by Lilly‘s continued operation as a Yale dealer during the pendency of the litigation. NACCO stated in its Notice of Termination that Lilly breached the Exclusivity, Best Efforts, and Business Ethics Provisions of the agreement, allowing the contract to be terminated. Furthermore, although NACCO only cited Lilly‘s conduct in selling Toyota products in the Memphis area as wrongful, NACCO claimed that the terms of the Nashville DMA were also violated by Lilly‘s conduct. According to NACCO, Lilly‘s breach of the Business Ethics Provision and Exclusivity Provision at its Memphis dealership permeated its relationship with NACCO, forcing NACCO to provide information to a dealer whom it cannot trust. NACCO claimed that any continued relationship with Lilly would cause irreparable harm by forcing NACCO to disclose marketing strategies to a dealer for its competitor.
i. Likelihood of Success on the Merits
A. Violation of the Exclusivity Provision
The trial court found that Lilly would likely succeed on the merits in this matter. The first inquiry as to whether Lilly can succeed on this matter is whether they were given proper notice of NACCO‘s intended termination. NACCO must have properly notified Lilly of the reasons for termination and allowed Lilly the statutorily required time to cure any breaches. If notice of termination under the Exclusivity, Best Efforts, or Business Ethics Provisions was improper, or if Lilly properly cured within the statutorily required time after notice was given, then that Provision may not be used as a basis for NACCO‘s proper termination of Lilly‘s dealership rights, and Lilly will have shown its likelihood of success.
The applicable Tennessee statute states that
(a) No supplier, directly or through an officer, agent or employee, may terminate, cancel, fail to renew or substantially change the competitive circumstances of a retail agreement without good cause. “Good cause” means failure by a retailer to comply with requirements imposed upon the retailer by the retail agreement if such requirements are not different from those imposed on other retailers similarly situated in [Tennessee]. In addition, good cause exists whenever:
- There has been a closeout on the sale of a substantial part of the retailer‘s assets related to the equipment business, or there has been a commencement of a dissolution or liquidation of the retailer;
- The retailer has changed its principal place of business or added additional locations without prior approval of the supplier, which shall not be unreasonably withheld;
- The retailer has substantially defaulted under a chattel mortgage or other security agreement between the retailer and the supplier, or there has been a revocation or discontinuance of a guarantee of a present or future obligation of the retailer to the supplier;
- The equipment retailer has failed to operate in the normal course of business for seven (7) consecutive days or has otherwise abandoned the business;
- The retailer has pleaded guilty to or has been convicted of a felony affecting the relationship between the retailer and the supplier; or
- The retailer transfers an interest in the dealership, or a person with a substantial interest in the ownership or control of the dealership, including an individual proprietor, partner or major shareholder, withdraws from the dealership or dies, or a substantial reduction occurs in the interest of a partner or major shareholder in the dealership. However, good cause does not exist if the supplier consents to an action described in this subsection.
The statute also requires that
(b) Except as otherwise provided herein, a supplier shall provide a retailer with at least ninety (90) days’ written notice of termination, cancellation or nonrenewal of the retail agreement and a sixty-day right to cure the deficiency. If the deficiency is cured within the allotted time, the notice is void.... The notice shall state all reasons constituting good cause for action. The notice is not required if the reason for termination, cancellation or nonrenewal is a violation under the provisions of subsection (a).
NACCO proposes that the statute does not require that NACCO give any notice to Lilly of the termination because NACCO bases the termination on “good cause” as set out in the main body of Section (a). At first blush, NACCO‘s interpretation clearly seems correct, since Section (b) does not require a supplier to provide notice if the reason for termination is set forth under Section (a). Closer examination reveals, however, that this straightforward interpretation of the statute, as espoused by the trial court, leads to an absurd result.3
- That a supplier may only terminate for good cause;
- That good cause is established either by a retailer‘s failure to comply with the terms of the contract or by one of the situations described in (a)(1) through (a)(6);
- That a supplier is generally required to provide notice setting forth the reasons constituting good cause.; and
- That if the supplier bases termination on the “provisions of subsection (a)” no notice is required describing good cause.
Section (a) seems to restrict reasons for termination to the defined instances of “good cause” explicitly set forth. It is not apparent that the Tennessee legislature intended to allow suppliers to terminate dealership agreements for reasons not specified in the statute. If the Court again takes the statute at its plain meaning and considers that all definitions of “good cause” are set forth within the “provisions of subsection (a),” then notice is never required for proper termination or nonrenewal by a supplier. This makes the first part of Section (b) regarding notice and cure meaningless, since it would be impossible for a supplier to list the reasons constituting “good cause” in a required notice when the supplier seeks termination for a reason outside the constraints of “good cause” defined in Section (a).4
The Court resolves this inconsistency by interpreting the Section (b) phrase “provisions of subsection (a)” to mean only the specific situations set forth in Sections (a)(1) through (a)(6). Thus, no notice is required for a supplier terminating a dealer for one of the specific listed scenarios, but a supplier must still provide a dealer ninety days notice before termination under the general definition of notice set forth in the body of Section (a). The notice must then “state all reasons constituting good cause” and these reasons must relate to “failure by a retailer to comply with requirements imposed upon the retailer by the retail agreement.” Because NACCO sought to terminate Lilly under three provisions of the DMAs, ninety days notice of a violation of each provision and sixty days for Lilly to cure were required before NACCO could use the Best Efforts, Business Ethics, or Exclusivity Provisions as bases for termination.
However, the fact that NACCO was required to provide notice to Lilly does not itself establish Lilly‘s likelihood of success because NACCO had notified Lilly of possible termination due to a breach of the Exclusivity Provision set out in Article 3.15
The district court nonetheless found that Lilly was entitled to a preliminary injunction, even though Lilly did seemingly violate the terms of the Exclusivity Provision in the Memphis DMA. The trial court found that the Exclusivity Provision was unenforceable. Under Tennessee law, a supplier may not “coerce a retailer into refusing to purchase equipment manufactured by another supplier.”
NACCO argues that the trial court erred in granting the injunction because it misinterpreted Tennessee law. While Tennessee caselaw has not interpreted the meaning of “coercion” in Part 1304, NACCO reasons that the trial court‘s interpretation of “coercion” would render any mutually agreed upon Exclusivity Provision unenforceable. NACCO suggests that Tennessee legislators knew how to distinguish between an enforceable requirement of exclusivity and coercion to be exclusive, as they did in the Tennessee Beer Franchise Act and other statutes.
Lilly cites the protective purposes of the 1999 amendments to Tennessee law governing retailer agreements.
In response, NACCO cites a recent case defining “coercion” under Minnesota state law with factual circumstances similar to this case. Minnesota Supply Co. v. Raymond Corp., 472 F.3d 524 (8th Cir.2006). In Minnesota Supply, the Court ruled that a finding of “coercion” required a finding that the supplier wrongfully persuaded the dealer and that the supplier‘s actions had the final result that the dealer did not purchase equipment manufactured by a competitor of the supplier. Id. at 537-39. Applying this interpretation of “coercion” to the instant case, NACCO could not have improperly coerced Lilly into an exclusive relationship, because, despite NACCO‘S threats and legal action, Lilly did eventually purchase equipment from Toyota. Thus, the argument goes, NACCO only attempted to coerce Lilly, and attempted coercion is not a statutory ground for liability under Tennessee law. The Minnesota Supply court also reasoned that the mere presence of an exclusivity requirement in a dealership agreement does not constitute coercion and is not void. In fact, the Court held that an exclusivity requirement may be an “essential and reasonable” component of the dealership agreement and may be enforced. Id. at 538-39.
It is unclear exactly what the Tennessee legislature meant by “coercion” in Part 1304, and other circuits interpreting the law of other states provide this Court conflicting guidance in the statute‘s interpretation. Yet, “[e]very circuit court of appeals that has addressed the issue has held that coercion or intimidation must include a wrongful demand accompanied by the threat of sanctions for noncompliance.” Colonial Dodge v. Chrysler Corp., 11 F.Supp.2d 737, 743 (D.Md.1996) (citations omitted). While the Tennessee statute was intended to protect the rights of retailers from unlawful coercion, it did not protect them from the enforcement of terms they contractually agreed to follow.
However, the trial court concluded that NACCO‘s method of enforcement, threatening to immediately sue Lilly and its officers for seemingly excessive amounts prior to any breach of the Exclusivity Provision and before any damages had been incurred, may amount to coercion in violation of the statute. We review the issue of whether the trial court correctly interpreted and applied the Tennessee statutes, as well as whether Lilly can show a likelihood of success on the merits, by a de novo standard. Whether NACCO engaged in unlawful coercion in its methods of enforcing the Exclusivity Provision or NACCO lawfully sought to enforce Lilly‘s contractual obligation is a close call. In the absence of guidance from Tennessee state courts or legislature, this Court must determine whether “coercion” under the Tennessee statute only assigns liability where the supplier successfully compelled the dealer not to purchase a competitor‘s equipment. Because interpretation of Tennessee statutes is more properly the province of Tennessee courts, we only construe the statute to the extent necessary to rule on the issue. Regardless of whether, under Tennessee law, coercion is only possible if Lilly did not purchase Toyota equipment or the trial court correctly concluded that NACCO could coerce Lilly through its enforcement of the Exclusivity Provision, we cannot determine that Lilly had absolutely no possibility for success on the merits; not all the facts are before the Court in its review of the November 23, 2004, Order. For instance, the Court does not know whether Lilly postponed its negotiations with Toyota or other competing manufacturers due to NACCO‘s investigation into a violation of the Exclusivity Provision. Therefore, under either interpretation of “coercion” under the Tennessee statute, we cannot determine on the facts before the Court that Lilly had either no likelihood of success or a strong likelihood of success.
While Lilly has not strongly established that it will likely succeed in showing that the Exclusivity Provision is void and that Lilly has not therefore violated it, this is not an insuperable bar to preliminary injunctive relief for Lilly. The trial court correctly concluded that the potential that Lilly will suffer irreparable harm balances the possibility that Lilly might not succeed on the merits and bolsters Lilly‘s right to injunctive relief. Shane Co., 816 F.Supp. at 399.
B. Violation of the Best Efforts Provision
The trial court found that the Best Efforts Provisions of the DMAs did not provide good cause for NACCO to terminate Lilly‘s dealership. Because Yale‘s market share in Lilly‘s territory was well above the national average at the time and Lilly retained separate sales staff to market Yale‘s products, the trial court held that NACCO could not show that it was damaged by Lilly‘s position as a dealer of competitor‘s products.
NACCO argues that Lilly did not meet its burden to show that it was in compliance with the Best Efforts Provision. NACCO claims that Lilly‘s obligation to use its best efforts to promote Toyota products necessarily conflicts with its obligation to “actively and effectively solicit[] and promot[e Yale products] on a regular and frequent basis to all actual and potential customers.” In Joyce Beverages, the court held that a best efforts clause was violated when a retailer attempted to sell two brands of similar soft drinks. Joyce Beverages of New York, Inc. v. Royal Crown Cola Co., 555 F.Supp. 271, 275 (S.D.N.Y.1983). The court tempered its decision by noting that “[a] best efforts clause is not per se breached by a mere undertaking of a competitive product line; it depends on the circumstances.” Id. (citing Polyglycoat Corp. v. C.P.C. Distribs., 534 F.Supp. 200 (S.D.N.Y.1982)).
Lilly contends that, in these circumstances, it could comply with the Best Efforts clause in the DMAs while carrying competing products. Lilly points to Reinders, a factually similar case, where the court found that a retailer could sell competing brands while complying with a contractual best efforts provision. Reinders, 627 F.2d at 47. Under the circumstances of this case, Lilly might have simultaneously complied with both Toyota‘s and NACCO‘s Best Efforts Provisions. Lilly trained separate sales staff to promote Toyota and Yale products. Lilly offered both products to its entire customer base. Thus, the trial court correctly concluded, on the facts available to it at the time, that Lilly would likely prevail on the merits regarding its compliance with the Best Efforts Provisions of the DMAs.
C. Violation of the Business Ethics Provision
The trial court did not determine whether Lilly would likely succeed on the merits regarding NACCO‘s claim that Lilly‘s violation of the Business Ethics Provi-
ii. Irreparable Injury to Lilly
The trial court also found that Lilly would inevitably suffer irreparable harm if it lost the right to sell Yale products and repair parts during this litigation, only to regain its Yale dealership after a trial on the merits. Specifically, the trial court determined that Lilly would be unable to maintain its Yale repair service if it could not purchase Yale parts directly from NACCO at lower prices than it could obtain the parts commercially.6 Lilly would
then lose its Yale maintenance customer base and be forced to terminate up to forty percent of its employees, repair specialists in Yale equipment. NACCO contends that Lilly has shown the potential for only economic loss. “Mere injuries, however substantial ... are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm.” Sampson v. Murray, 415 U.S. 61, 90, 94 S.Ct. 937, 39 L.Ed.2d 166 (1974). NACCO claims that any irreparable damages claimed by Lilly are merely speculative. Lilly must show irreparable harm that is “both certain and immediate, rather than speculative or theoretical” to satisfy its burden to receive preliminary injunctive relief. Michigan Coalition of Radioactive Material Users, Inc. v. Griepentrog, 945 F.2d 150, 154 (6th Cir.1991). NACCO argues that Lilly‘s claims that it would lose customers and specialized employees if sales of Yale equipment is interrupted are insufficient. Some losses of goodwill to Lilly, however, seem reasonably certain. Loss of goodwill and business profits signify irreparable harm. See, e.g., Warren v. City of Athens, Ohio, 411 F.3d 697, 712 (6th Cir.2005); Engler, 257 F.3d at 599; Basicomputer Corp. v. Scott, 973 F.2d 507, 511-12 (6th Cir.1992). Moreover, NACCO‘s suggestion that Lilly might avoid irreparable harm by selling Toyota products to make up the profit is without merit. See Reinders, 627 F.2d at 53-54. NACCO claims that all harm Lilly might suffer is purely economic, and cites numerous cases where loss of a dealership during litigation created purely economic damages. However, the trial court correctly concluded that “although Lilly could possibly be com-
iii. Substantial Harm to NACCO
The trial court concluded that NACCO would not suffer harm by the issuance of an injunction prohibiting it from terminating its relationship with Lilly. Particularly, NACCO claimed that it would be harmed by a continuing relationship with either Lilly‘s Nashville or Memphis dealerships, because Lilly would be privy to Yale‘s marketing strategies and might disclose that information to Yale‘s competitor, Toyota. Furthermore, Yale asserts that it would be harmed by being forced to remain in a contract with an untrustworthy dealer.
Lilly points out that NACCO associates with numerous dealerships that sell competitor‘s products, whether because the dealerships are transitioning to sell exclusively Yale products or because they have traditionally sold more than one line of products. Furthermore, NACCO‘s other line of forklifts, Hyster, is not generally sold exclusively to dealers. While these dealers have not contracted to sell Yale products exclusively, they logically pose the same risk to NACCO that marketing secrets would be disclosed to competitors. NACCO‘s claims that Lilly‘s dual dealing of Toyota products will cause it to leak Yale marketing information and cause NACCO harm are not convincing. Therefore, the trial court did not abuse its discretion in concluding NACCO had little, if any, harm to be considered in issuing the injunction.
iv. Policy Considerations
The trial court found that “The public interest may be declared in the form of a statute.”
Policy considerations and the lack of a significant possibility of harm to NACCO weigh in favor of granting Lilly‘s injunction. Additionally, the trial court did not abuse its discretion in concluding that Lilly might suffer irreparable harm if injunctive relief was not granted. There is some likelihood, based on the facts before the trial court, that Lilly would succeed on the merits in this case as well, although this Court need not make a definite ruling on that matter to affirm the trial court‘s ruling. Therefore, the Court concludes that
2. The trial court‘s order on June 30, 2005, is appealable.
On June 30, 2005, the trial court had not yet issued an Order disposing of Lilly‘s Application for a Preliminary Injunction requesting that NACCO be enjoined from refusing to renew the Memphis and Nashville DMAs when they expired by their terms on July 2, 2005. To avoid NACCO‘s inevitable nonrenewal if an injunction was not issued, the trial court gave the following Order.
Given the volume of evidence introduced [at the preliminary injunction hearing], most of which is by deposition testimony, the Court must take this matter under advisement. The status quo shall be maintained as to all matters between the parties pursuant to the contract between the parties as it existed prior to July 2, 2005, the Court‘s Order of November 23, 2004, and otherwise, pending the Court‘s ruling on the matters presented at the June 1, 2005, hearing.
Lilly posits that this Order is not appealable under
NACCO contends, and Lilly does not seriously dispute, that the June 30, 2005, Order granted Lilly injunctive relief. By purporting to maintain the status quo, the trial court enjoined NACCO from refusing to renew Lilly‘s dealership agreements between July 2, 2005, and October 17, 2005, when the trial court‘s Order on the preliminary injunction was issued. Had the trial court not issued its June 30 Order, NACCO would have been free not to renew Lilly‘s contract on the purported basis of “good cause” as litigation progressed. Since the Order has the effect of an injunction prohibiting NACCO from nonrenewal, it may be considered under the same standards as other injunctive relief.
NACCO then shows that the June 30, 2005, Order may have serious, irreparable consequences for NACCO. NACCO sets forth the possibility that continued association with a dealer who may be dishonest could endanger NACCO‘s private product marketing and pricing information. NACCO cannot be sure that Lilly would not act dishonestly in the future or disclose NACCO‘s internal marketing strategies to Toyota, its competitor. These disclosures or potential dishonest acts by Lilly certainly could cause some irreparable harm to NACCO during the time NACCO‘s nonrenewal of Lilly‘s DMAs was delayed.
Lilly then argues that NACCO cannot appeal the June 30, 2005, Order because NACCO “has failed to show that the Order can only be effectively challenged by immediate appeal.” See Switzerland Cheese Ass‘n v. E. Horne‘s Market, Inc., 385 U.S. 23, 87 S.Ct. 193, 17 L.Ed.2d 23 (1966). Switzerland Cheese is inapplicable to this matter. That case involved the attempted pretrial appeal of the denial of a summary judgment motion seeking a permanent in-
3. The trial court abused its discretion in issuing an Order on June 30, 2005, preserving the parties’ contractual relationship under the DMAs until the court decided Lilly‘s application for a preliminary injunction when it did not issue any findings of fact, conclusions of law, or explicit consideration of the standards for injunctive relief.
NACCO argues on appeal that the trial court did not properly follow the mandates of Federal Rules of Civil Procedure in issuing its June 30, 2005, Order.
Every order granting an injunction ... shall set forth the reasons for its issuance; shall be specific in terms; [and] shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained....
In this case, the district court made no findings of fact or conclusions of law and failed entirely to consider the required preliminary injunction standard. Injunctive relief may be vacated where the trial court states no support for it. Weitzman v. Stein, 897 F.2d 653, 658 (2nd Cir.1990); Glover, 855 F.2d at 284. In an analogous situation, this Court vacated an order staying further advancement of a case while the court took injunctive issues under advisement. Winzeler Excavating Co. v. Brock, No. 87-3003, 1987 WL 39061 (6th Cir. Nov.24, 1987). As in this case, the Court held that the Order operated in effect as an injunction without the proper findings of fact and conclusions of law. Because the Order was in violation of the Federal Rules of Civil Procedure, the Court vacated the Order. Id.
Lilly points out that the trial court issued the June 30, 2005, Order because it required additional time to decide upon
The trial court erred in granting the June 30, 2005, Order without adding findings of fact and conclusions of law. The Order constituted injunctive relief, prohibiting the nonrenewal of the Nashville and Memphis DMAs beyond their set dates of expiration. Furthermore, the trial court‘s reasoning in extending the contracts was not so clear as to obviate findings of fact and conclusions of law. The court‘s views on preliminary relief prohibiting nonrenewal ultimately differed from the reasoning in the November 23, 2004, Order, so the prior Order‘s findings of fact and conclusions of law could not merely be absorbed into this Order as well. Therefore, the June 30, 2005, Order was improperly granted.
4. The appeal of the trial court‘s Order on June 30, 2005, is not moot although that Order has been superseded by the trial court‘s Order of October 17, 2005.
Lilly argues that any consideration of NACCO‘s appeal of the June 30, 2005, Order is improper at this time because the Order has been superseded by the trial court‘s disposition on the merits of the preliminary injunction. A federal court may not render a decision upon moot questions or declare rules of law that cannot affect the matter at issue. United States v. City of Detroit, 401 F.3d 448, 450 (6th Cir.2005). An appeal is moot if the court is not in the position to grant any effectual relief whatsoever. Chirco v. Gateway Oaks, Inc., 384 F.3d 307, 308-09 (6th Cir.2004); Coalition for Gov‘t Procurement v. Fed. Prison Indus., Inc., 365 F.3d 435, 458 (6th Cir.2004); Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 656 n. 2 (6th Cir.2003); Carras v. Williams, 807 F.2d 1286, 1289 (6th Cir.1986).
While the passage of time and entry of the October 17, 2005, Order make it impossible for this panel to effectively alter the terms of the June 30, 2005, injunction, effective relief is still available. In the October 17, 2005, Order, the trial court determined that NACCO had the right to refuse to renew Lilly‘s Memphis DMA on July 2, 2005. Injuries NACCO suffered from its continued contractual relationship with Lilly between July 2, 2005, and October 17, 2005, are potentially recoverable. See Int‘l Union, United Auto., Aerospace & Agric. Implement Workers v. LaSalle Mach. Tool, Inc., 696 F.2d 452, 458-59 (6th Cir.1982) (declaring that an appeal of an expired injunction was not moot when damages resulting from the injunction had not been determined). See also Liner v. Jafco, Inc., 375 U.S. 301, 305-06, 84 S.Ct. 391, 11 L.Ed.2d 347 (1964); United Food & Commercial Workers Local No. 880 v. Cozzoli Sparkle Mkt., Inc., No. 87-3946, 1988 WL 12220, at * 1 (6th Cir. Feb.16, 1988) (remanding an expired temporary restraining order to the district court to assess damages occasioned by the improper injunctive relief). Thus, the panel‘s vacation and remand of the improper June 30, 2005, injunction does grant effective relief, and the appeal of the June 30, 2005, injunction is not moot.
5. The trial court did not abuse its discretion in issuing an Order on October 17, 2005, granting injunctive relief prohibiting NACCO from refusing to renew its DMA granting Lilly dealership rights in the Nashville area.
The trial court issued an Order on October 17, 2005, granting Lilly a preliminary
After the issuance of the November 23, 2004, preliminary injunction, NACCO discovered at least two other instances of Lilly‘s potential breach of the Business Ethics Provisions of the DMAs. In 1992, Lilly began selling Yale parts to a company in Monterey, Mexico. This sale was in contravention of the terms of its contract at the time. NACCO requested that Lilly cease making sales to Mexico. Lilly consistently represented to NACCO that it had stopped making sales to the Mexico plant; however, discovery revealed that Lilly was clandestinely involved in these sales until at least April 18, 2005. Also, NACCO discovered that Lilly had collected a sales incentive award in 2004 for sales of one hundred forklifts to AutoZone which sales were never made. NACCO maintains that Lilly‘s dishonesty on these matters constitutes further breaches of the Business Ethics Provisions of both the Memphis and Nashville DMAs.
After NACCO filed Nonrenewal Notices, Lilly also signed a dealership contract to sell Clark, Linde, and Daewoo forklifts in competition with its Yale line. The new dealership would operate in the Knoxville, Tennessee, area, and would violate the Exclusivity Provisions of the both the Mem-phis and Nashville DMAs if they were found to be valid. NACCO also asserts that Lilly‘s activities marketing the competing brands would prevent it from complying with the Best Efforts Provisions in the DMAs.
i. Lilly‘s Likelihood of Success on the Merits
A. Exclusivity Provision
NACCO claims that Lilly‘s choice to deal products from four competitors of Yale blatantly violates the Exclusivity Provisions of both the Nashville and the Memphis DMAs. In particular, NACCO notes that the DMAs’ Exclusivity Provisions do not contain a territorial limit; in other words, even if Lilly were to only violate the Exclusivity Provision through activities at its Memphis location, the Nashville DMA would also be breached by Lilly‘s disloyalty. In ruling on this matter, the trial court found that any violation of the Exclusivity Provisions did not constitute good cause, because NACCO “coerced” Lilly to adopt the Exclusivity Provisions in violation of Tennessee law.
While the trial court ruling that NACCO attempted to coerce Lilly to sell exclusively Yale products at the time of the November 23, 2004, Order was based on articulated facts, Lilly has presented no evidence that NACCO attempted to coerce it not to deal in Clark, Linde, or Daewoo products. Rather, NACCO merely filed a nonrenewal notice in response to Lilly‘s decision to deal in competitor‘s products. Assuming that NACCO‘s Exclusivity Provision was not void at the outset due to coercion, the mere enforcement of that Provision would constitute good cause for nonrenewal of the Nashville DMA. The difference of opinion from the trial court‘s Order of October 17, 2005, however, does not mandate a ruling that the trial court abused its
B. The Best Efforts Provision
Between the trial court‘s considerations of Lilly‘s compliance with the Best Efforts Provision in November, 2004, and October, 2005, Lilly‘s market share of Yale product sales varied dramatically. While the parties disagree on the exact status of Lilly‘s market share, NACCO argued that any drops in sales resulted from Lilly‘s diverted efforts to selling Toyota products. Lilly blamed NACCO for the lowered sales, claiming NACCO had provided Lilly with little marketing information and insufficient products to fulfill orders. The trial court found that Lilly could not show with a strong likelihood of success that it had complied with the Best Efforts Provision in the Memphis DMA. Lilly‘s Memphis sales of Yale products had suffered dramatically since it started dealing in Toyota products as well. The changed circumstances show that Lilly‘s delayed bifurcation of its sales force and zealous promotion of Toyota products interfered with its ability to use its best efforts to promote Yale products at its Memphis location. However, the trial court found that Lilly could show a strong likelihood of success regarding its compliance with the Nashville DMA Best Efforts Provision. Lilly‘s market share of Yale sales was sufficient, and NACCO presented no evidence that Lilly sold competing brands at that location. The trial court also dismissed NACCO‘s argument that the breach of the Memphis DMA Best Efforts Provision tainted Lilly‘s compliance with the Nashville DMA Best Efforts Provision, since the Best Efforts Provisions specific to the location were set out in the DMA. No error is apparent in the trial court‘s decision that Lilly complied with the Nashville DMA Best Efforts Provision.
C. The Business Ethics Provision
The trial court found that Lilly had not shown a strong likelihood of success regarding NACCO‘s claims that Lilly violated the Business Ethics Provisions of both the Nashville and Memphis DMAs. According to the trial court, Lilly had almost certainly violated the Memphis DMA Business Ethics Provision in its misleading behavior during its negotiations with Toyota. The trial court also found that “[t]he clause deals with honesty, and it is logical to conclude that [violations of the Business Ethics Provision] cannot be limited to location but instead extend to all relationships to which Lilly and [NACCO] are a part.”
In finding that Lilly had likely violated the Business Ethics Provisions of both the Nashville and Memphis DMAs, the trial court established that NACCO might show good cause for nonrenewal of both and that Lilly was unlikely to succeed on the merits of this action. NACCO contends that, since Lilly cannot show likely success on the merits regarding the terms of the Nashville DMA, the trial court‘s grant of injunctive relief was improper. While “a finding that there is simply no likelihood of success on the merits is usually fatal,” that is not the case here. Gonzales v. Nat‘l Bd. of Med. Exam‘rs, 225 F.3d 620, 625 (6th Cir.2000). The trial court found that, while Lilly had little likelihood of success on the merits regarding its breach of the Nashville DMA, there may have been some likelihood of success. Since no factor is determinative in a preliminary injunction ruling, Lilly‘s likelihood of success, or lack thereof, is merely balanced with the other factors.
ii. Lilly‘s Irreparable Harm if an Injunction is Not Issued
The trial court found that, based on the same analysis used in its November 23,
Regarding Lilly‘s irreparable harm if an injunction is not issued, NACCO merely echos its arguments set forth in the appeal of the November 23, 2004, Order. Again, and for the same reasons as discussed above, these arguments fail. The trial court did not abuse its discretion in finding that Lilly has demonstrated that it would suffer irreparable harm if NACCO refuses to renew its dealerships during the pendency of this litigation.
iii. Harm to NACCO if the Injunction Is Issued
The trial court determined that NACCO has shown it would suffer little harm from its continued relationship with Lilly‘s dealerships during the pendency of the litigation. Instead, Lilly has shown that NACCO has disclosed its marketing strategies to other dealers who also sell competing brands and has suffered no harm. As in the trial court‘s November 23, 2004, Order, NACCO failed to tip the scales by showing it would be harmed by the imposition of a preliminary injunction allowing Lilly to continue selling Yale products. Again, NACCO restates the protests it first voiced in its appeal of the November 23, 2004, Order—that NACCO is harmed by being forced to continue a relationship with a dishonest dealer who could disclose NACCO‘s confidential business information to competitors. In light of NACCO‘s contracts with other dealers who also sell Yale‘s competitors’ products, the argument that NACCO is harmed by potential leaks of information to competitors holds little water. NACCO also argues that it suffers a “great hardship” by being forced to remain “frozen into an intimate and continuous relationship with a dealer it no longer wishes to be associated with.” Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 392 (7th Cir.1984) (quoting Jack Kahn Music Co. v. Baldwin Piano & Organ Co., 604 F.2d 755, 764 (2d Cir.1979)). This harm, if any, was balanced against the other preliminary injunction factors in a proper exercise of the trial court‘s discretion.
iv. Policy Considerations
Repeating its analysis under the November 23, 2004, injunction, the trial court determined that the stated policy of the applicable Tennessee statutes was to protect dealers through injunctive relief from opportunistic manufacturers. See
The trial court did not abuse its discretion in balancing the preliminary injunction factors as to the Nashville DMA. While Lilly showed a low likelihood of success on the merits because of a probable violation of the Business Ethics Provision, Lilly also showed a strong risk of irreparable harm if the injunction was not issued. Since NACCO did not convincingly demonstrate that it would be seriously
6. The trial court did not abuse its discretion in issuing an Order on October 17, 2005, denying injunctive relief prohibiting NACCO from refusing to renew its DMA granting Lilly dealership rights in the Memphis area.
Lilly asserts that the trial court abused its discretion in denying Lilly‘s requested preliminary injunction and allowing NACCO to refuse to renew the Memphis DMA in its Order of October 17, 2005. Specifically, the trial court found that Lilly had a very low likelihood of success on the merits regarding its compliance with the Memphis DMA because of alleged breaches of the Best Efforts and Business Ethics Provisions. Lilly was likely to suffer less irreparable harm from a loss of Yale products at that dealership, since it already had employed some staff in sales of Toyota products. NACCO had arguably suffered some harm, in the form of lowered market shares, from Lilly‘s representation of a competing dealer at the Memphis location. Also, since NACCO posited several lawful reasons it might refuse to renew Lilly‘s Memphis DMA, public policy would not support preventing NACCO from enforcing its rights. Lilly argues that it had a high likelihood of success, which favorably altered the trial court‘s balance of the preliminary injunction factors.
Lilly insists that the sole reason for nonrenewal of the Memphis DMA is Lilly‘s breach of the Exclusivity Provision. Since the Exclusivity Provision had been found unenforceable in the trial court‘s November 23, 2004, Order, Lilly contends that there is no valid reason for nonrenewal. As discussed above, the trial court properly based its decision on NACCO‘s other purported reasons for nonrenewal: Lilly‘s breaches of the Memphis DMA‘s Business Ethics and Best Efforts Provisions.
In its argument that it did not violate the Best Efforts or Business Ethics Provisions of the Memphis DMA, Lilly sets forth similar arguments to those that succeeded in its application for the November 23, 2004, preliminary injunction. Significantly, Lilly does not address the changed circumstances at the time of the October 17, 2005, Order: that NACCO had discovered incidents of dishonesty involving Lilly‘s sale of parts outside its sales area to Mexico, and that Lilly had collected a sales incentive award, though it never made the underlying sales. In light of NACCO‘s discovery of additional violations and changed circumstances, the trial court correctly found that Lilly had a low likelihood of success on the merits in showing that it fully complied with the Memphis DMA.
Lilly then argues that NACCO did not properly give Lilly notice and an opportunity to cure any defaults under the Memphis DMA before nonrenewal. In particular, Lilly claims it was not provided sixty days to cure any alleged deficiency to void any notice of nonrenewal.
Lilly has not shown any error in the trial court‘s determination of its likelihood of success on the merits. Furthermore, Lilly has not shown that the trial court abused its discretion in balancing the factors determining whether Lilly was entitled to a preliminary injunction prohibiting the nonrenewal of its Memphis DMA. Therefore, the trial court‘s denial of injunctive relief to Lilly in it October 17, 2005, Order was proper.
7. The trial court committed reversible error in failing to consider NACCO‘s request for bond to accompany its preliminary Orders prohibiting NACCO from terminating or refusing to renew its DMAs for Lilly‘s Nashville or Memphis dealerships.
NACCO moved the trial court to require a bond from Lilly shortly after injunctive relief was issued on November 23, 2004. Lilly filed an opposition. In its subsequent Orders, including the Orders of June 30, 2005, and October 17, 2005, granting injunctive relief, the trial court failed to consider the bond request.7
Under
[n]o preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.
Contrary to the strong language of
CONCLUSION
For the foregoing reasons, the Court AFFIRMS the trial court‘s Preliminary Injunction of November 23, 2004. The trial court‘s Order of October 17, 2005, granting and denying in parts Lilly‘s request for a Preliminary Injunction is also AFFIRMED. Unresolved issues regarding possible damages to NACCO flowing from the June 30, 2005, injunction prohibiting the nonrenewal of the Memphis DMA and the possible imposition of a bond accompanying the June 30, 2005, and October 17, 2005, injunctions prohibiting the nonrenewal of the Nashville DMA are REMANDED for consideration by the trial court.