Photo Credit: NombergLaw, How Forced Arbitration Can Impact Your Alabama Lawsuit, https://nomberglaw.com/alabama-injury-compensation-guide/forced-arbitration-personal-injury-cases/ (last visited Jun. 24, 2023).
Authored By: Zach Chiepalich, Student Materials Editor
September 11, 2023
Arbitration agreements are included in nearly every commercial transaction today. Whether you are buying a car, entering into a long-term commercial agreement, or signing an employment contract, chances are that you will have to agree to some form of arbitration. Arbitration is an agreement between two parties where each party waives their right to sue the other and instead agrees to submit any disputes to a neutral third party for a final decision that is not appealable.[1] The majority of arbitration clauses in contracts include a forced arbitration clause which according the National Consumer Law Center “is a get-out-of-jail card that takes away [a party’s] day in court, forcing them into a tribunal that is often biased, secretive, and lawless.”[2] While this sounds and often is harsh, arbitration does have some benefits for both parties because it allows them to reach a relatively quick resolution without costly and drawn-out litigation.[3] Arbitration is criticized by many as unfair because the arbitrators are often corporate attorneys who are far more likely to rule in favor of a business in a dispute.[4] According to a study conducted by the Consumer Financial Protection Bureau, over 90 percent of disputes that are resolved in arbitration are decided in the business’s favor.[5]
Parties adjudicating their claims in arbitration must first determine whether the Federal Arbitration Act (FAA) applies to their claim. The FAA requires that arbitration agreements be in writing, relate to a commercial or maritime matter, and state that the parties agreed to arbitrate any dispute that arises.[6] The Alabama Arbitration Act (AAA) is codified in Ala. Code §§ 6-6-1 through 6-6-16 (1975) and mirrors much of the FAA.[7] Alabama state courts apply the federal FAA standard when determining whether to compel arbitration and must decide whether there is a valid agreement to arbitrate.[8] To make this determination, the courts use contract law to determine whether there was a valid offer, acceptance, consideration, and mutual assent when the parties agreed to arbitration.[9] Since arbitration agreements are at every turn today, the question arises, can a plaintiff still seek injunctive relief from Alabama courts even if the contract in question compels arbitration?
This question was recently answered by the Alabama Supreme Court in Hyundai Construction Equipment Americas, Inc. v. Southern Lift Trucks, LLC.[10] This case involved a commercial sales contract between Hyundai and Southern that quickly turned ugly. Southern filed an action in Alabama State Court alleging that Hyundai had breached two dealership agreements by demanding Southern abide by stipulations not in the original agreement or lose the contracts altogether.[11] When Southern refused to comply with these new demands, Hyundai notified them that they were terminating the agreements and entering into a new sales and service agreement with one of Southern’s competitors.[12] Not surprisingly, Southern sued Hyundai for breach of contract, tort, conspiracy, declaratory judgment, and sought a preliminary injunction keeping the contract in place and precluding Hyundai from entering into the new contracts with Southern’s competitors.[13] Southern then ran into every defendant’s best friend, an arbitration agreement.
Despite the arbitration agreement, Southern aggressively sought the preliminary injunction to prevent Hyundai from continuing to give business to Southern’s competitors. Hyundai argued that the trial court did not have jurisdiction to grant a preliminary injunction in this case because the disputes were subject to arbitration.[14] Hyundai filed a motion to dismiss the complaint and compel arbitration pursuant to the terms of the sales agreement that stated “All disputes between the parties relating to or arising out of this Agreement… shall be resolved by arbitration.”[15] The trial court denied Hyundai’s motion to compel arbitration, granting Southern’s motion for a preliminary injunction.[16] Hyundai appealed both of these decisions, and the Alabama Supreme Court was left to decide whether the trial court had the authority to grant a motion for a preliminary injunction for a dispute that was subject to arbitration.
The Alabama Supreme Court explained that trial courts have the ability to issue a preliminary injunction to “maintain the status quo between the parties, even when the dispute should be sent to arbitration.”[17] A motion to compel arbitration does not serve as an adjudication on the merits or terminate the underlying action.[18] There were two contracts that Southern sought to enjoin Hyundai from violating. The court found that a preliminary injunction for the first contract, labeled the construction-equipment agreement, was improper because “Southern had not sold a single piece of construction equipment [in over a year].”[19] Therefore, a preliminary injunction “was not necessary to preserve the status quo” because Southern would not suffer any immediate harm by the court’s failure to issue an injunction. [20] However, the second contract, labeled the forklift agreement, was a different story. Southern argued that they had made significant investments to serve as a dealer of Hyundai’s lift-truck equipment. Southern argues that they were legally permitted to “bring a civil action… to enjoin further violations” of the forklift agreement with Hyundai.[21] Hyundai responded that Southern was not entitled to the injunction because Hyundai had not “terminated” the agreement but rather they “added another dealer.”[22] The court evaluated the status quo and found that “[s]trong sales numbers are the status quo” and that Southern had suffered harm to its reputation and goodwill; consequently, the Alabama Supreme Court upheld the trial court’s grant of the preliminary injunction.[23] The court explained that an injunction is not an “indefinite” order, and it will only remain in effect until the dispute is resolved in arbitration.[24]
This case clarified that Alabama courts can issue preliminary injunctions only to “maintain the status quo between the parties, even when the dispute should be sent to arbitration.”[25] The next question that arises is at what point a party should seek a preliminary injunction instead of simply resolving the dispute in arbitration? Parties to a dispute should weigh the costs and benefits of a preliminary injunction and only petition a court for injunctive relief when they suffer economic or reputational harm. Alabama courts will issue preliminary injunctions to “maintain the status quo” between the parties while the claims are being decided in arbitration. [26] Therefore, preliminary injunctions can be a valuable tool that attorneys use to prevent ongoing damage to their clients while a dispute is pending resolution in arbitration.
[1] NombergLaw, How Forced Arbitration Can Impact Your Alabama Lawsuit, https://nomberglaw.com/alabama-injury-compensation-guide/forced-arbitration-personal-injury-cases/ (last visited Jun. 24, 2023).
[2] Id.
[5] Id.
[6] Michael P. Taunton and Gregory Carl Cook, Compelling and Staying Arbitration in Alabama, Practical Law, 2017.
[7] Id.
[8] Id; see also Am. Gen. Fin., Inc. v. Branch, 793 So. 3d 738 (Ala. 2000).
[9] See Baptist Health Sys., Inc. v. Mack, 860 So. 2d 1265 (Ala. 2003).
[10] SC-2022-0675, 2023 WL 3402311, *1 (Ala. May 12, 2023).
[11] Alex Bein, Alabama Supreme Court Clarifies Courts’ Authority to Issue Preliminary Injunctions in Disputes Subject to Arbitration, JDSUPRA, Jun. 23, 2023.
[12] Hyundai Construction, 2023 WL 3402311, *2.
[13] Alex Bein, Alabama Supreme Court Clarifies Courts’ Authority to Issue Preliminary Injunctions in Disputes Subject to Arbitration, JDSUPRA, Jun. 23, 2023.
[14] Hyundai Construction, 2023 WL 3402311, *10.
[15] Hyundai Construction, 2023 WL 3402311 at *2.
[16] Id.
[17] Hyundai Construction, 2023 WL 3402311, *10; Spinks v. Automation Pers. Servs., Inc., 49 So. 3d 186, 190 (Ala. 2010); Holiday Isle, LLC v. Adkins, 12 So. 3d 1173, 1177 (Ala. 2008) (stating that the “trial court had jurisdiction to enter a preliminary injunction to order equitable relief to preserve the status quo” and reasoning that the American Arbitration Association Commercial Rules recognize such an option).
[18] Michael P. Taunton and Gregory Carl Cook, Compelling and Staying Arbitration in Alabama, Practical Law, 2017.
[19] Id.
[20] Id. (internal quotations omitted)
[21] Ala. Code § 8-21B-13 (1975).
[22] Hyundai Construction, 2023 WL 3402311 at *10.
[23] Id.
[24] Id.
[25] Id.
[26] Id.
American Journal of Trial Advocacy 