Alabama Supreme Court Clarifies Courts’ Authority to Issue Preliminary Injunctions in Disputes Subject to Arbitration

In its recent decision in Hyundai Construction Equipment Americas Inc. v. Southern Lift Trucks LLC, the Alabama Supreme Court considered whether the trial court erred in granting preliminary injunctive relief in a dispute that was otherwise subject to arbitration.

Southern Lift Trucks, a heavy construction equipment dealer, filed a state court action against Hyundai Construction, a construction equipment manufacturer, alleging that Hyundai breached two separate dealership agreements between the parties by forcing unreasonable restrictions on Southern Lift and entering into separate dealership agreements with Southern Lift’s competitors in its sales territory. Southern Lift asserted claims for breach of contract, tort, conspiracy, and declaratory judgment against Hyundai arising from Hyundai’s alleged actions. Southern Lift also sought a preliminary injunction maintaining the status quo and precluding Hyundai from either terminating the dealership agreements or entering into new agreements with Southern Lift’s direct competitors. Hyundai moved to dismiss the complaint and to compel arbitration.

After a hearing, the trial court granted Southern Lift’s motion for a preliminary injunction. The trial court subsequently denied Hyundai’s motion to compel arbitration. Hyundai appealed both decisions.

In reversing in part the trial court’s denial of Hyundai’s motion to compel arbitration, the Alabama Supreme Court held that the parties’ disputes under both dealership agreements were subject to arbitration, except for Southern Lift’s declaratory judgment claim, which fell under a narrow carve-out in the agreements’ arbitration provisions.

Turning to the trial court’s preliminary injunction ruling, the court declared that under established Alabama law, courts have jurisdiction to enter preliminary injunctive relief to maintain the status quo between the parties, even when the dispute is otherwise subject to arbitration. But because the parties’ dispute was subject to two separate lines of business and dealership agreements, the court analyzed Southern Lift’s entitlement to preliminary injunctive relief under each dealership agreement separately.

Regarding the first dealership agreement, which dealt with construction equipment sales, the court noted that no such construction equipment had been sold under the agreement for more than two years, such that Southern Lift could not establish irreparable harm or difficulty in calculating damages as required to obtain a preliminary injunction. The court thus reversed the trial court’s grant of a preliminary injunction as to the construction equipment agreement.

As to the second dealership agreement, which dealt with forklift sales, the court noted that Southern Lift had provided evidence of significant and consistent sales of forklifts and other equipment subject to the agreement. Southern Lift also presented evidence that its reputation, goodwill, and customer base were being negatively affected by Hyundai’s complained-of actions. The court found that if it were to reverse the trial court’s entry of a preliminary injunction as to the forklift agreement on these facts, the court risked providing a “hollow victory” to Southern Lift should it ultimately prevail, whether in arbitration or before the court. As such, the court affirmed the trial court’s entry of a preliminary injunction as to the forklift agreement. This was so, notwithstanding the court’s determination that the majority of the dispute with respect to both agreements was subject to arbitration.