Applied Medical Distribution v. Surgical Co. Bv
| Decision Date | 03 November 2009 |
| Docket Number | No. 09-55155.,09-55155. |
| Parties | APPLIED MEDICAL DISTRIBUTION CORPORATION, a California corporation, Plaintiff-Appellant, v. The SURGICAL COMPANY BV, a Netherlands limited liability company, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Richard J. Grabowski, Brian M. Hoffstadt (argued) and Edward S. Chang, Jones Day, Irvine, CA, for the plaintiff-appellant.
Bruce H. Jackson (argued) and Jerry Salcido, Baker & McKenzie LLP, San Francisco, CA, for the defendant-appellee.
Appeal from the United States District Court for the Central District of California, David O. Carter, District Judge, Presiding. D.C. No. 8:07-cv-01420-DOC-MLG.
Before: RAYMOND C. FISHER and RONALD M. GOULD, Circuit Judges, and MORRISON C. ENGLAND, JR., District Judge.*
ORDER AMENDING OPINION AND AMENDED OPINION
The opinion filed on November 3, 2009, and published at ___ F.3d ___, 2009 WL 3583047, is AMENDED as follows:
On slip opinion page 14835, the final sentence ending on slip opinion page 14836, delete the following text: ", so Surgical's filing of the Belgian action, in violation of the forum selection clause, should not impede comity".
IT IS SO ORDERED.
Applied Medical Distribution Corporation appeals the district court's judgment in its diversity action against the Surgical Company BV denying injunctive relief that would have prevented Surgical from pursuing its suit in Belgium for statutory termination damages allegedly available under Belgian law. The issue is whether the district court abused its discretion in denying the anti-suit injunction. We have jurisdiction under 28 U.S.C. § 1291. We reverse and remand for the district court to enter an anti-suit injunction.
Applied Medical Distribution Corporation ("Applied"), a California corporation, and the Surgical Company BV ("Surgical"), a Netherlands limited liability company, entered a relationship whereby Surgical would purchase surgical supply products from Applied for distribution in Belgium, the Netherlands, and Luxembourg. The relationship began without a written agreement in 1999, and in 2000 the parties agreed in a written contract that Surgical would be the exclusive distributor of Applied's products in the three countries.
In 2006, the parties entered a new distribution agreement ("Agreement"), effective retroactively to January 1, 2005. The parties negotiated for more than a year regarding the terms of the Agreement. These terms include the following four provisions important here:
Paragraph 9(a): "Unless extended by mutual agreement in writing," the Agreement would terminate on December 31, 2007. The parties could also terminate the Agreement before then for any reason or no reason with 90 days notice. See Paragraph 9(e).
Paragraph 9(f), entitled "Limitation on Liability":
Paragraph 10(a), entitled "Governing Law and Jurisdiction":
Paragraph 10(f), entitled "Legal Expenses": "The prevailing Party in any legal action brought by one Party against the other and arising out of this Agreement shall be entitled, in addition to any other rights and remedies it may have, to reimbursement for its expenses, including court costs and reasonable attorneys' fees."
Mr. van Schil, Surgical's CEO, claims that he objected to the forum selection clause, but signed the Agreement and accepted it in order to maintain the business relationship. He also claims that he thought the Agreement's choice-of-law and limitation-on-liability provisions would not limit Surgical's rights under Belgian law, but he did not assert that such an understanding was ever discussed with Applied.
Around June 2007, Applied notified Surgical that under Paragraph 9(a) of the Agreement, Applied would not be renewing the Agreement, which was then scheduled to expire on December 31, 2007. Surgical replied in writing on November 9, 2007, asserting that Surgical was entitled to protection under the Belgian Act of 1961 ("Belgian Act") in the form of compensation. Next, Applied filed a complaint seeking declaratory relief against Surgical on December 7, 2007, in the United States District Court for the Central District of California. Surgical thereafter filed suit in Belgium on January 29, 2008.
In its declaratory action in district court, Applied filed a motion for summary judgment—the motion underlying this appeal —requesting that the court: "(1) enjoin Surgical from pursuing relief in Belgium or any other non-California forum under non-California law; (2) declare that the Agreement terminated pursuant to its terms on December 31, 2007; (3) declare that `goodwill indemnities' are precluded and that Surgical will take nothing due to termination of the Agreement; and (4) award Applied its costs, expenses, and attorneys fees."
Before addressing the anti-suit injunction, the district court made several holdings that are not appealed by Surgical. The district court held that "the dispute over goodwill indemnities arises out of the Agreement" because the determination of whether goodwill indemnities may be recovered requires passing on the applicability of Paragraph 9(f)'s limitation on liability for damages resulting from termination. The district court concluded that the choice-of-law and forum selection clauses in the Agreement were valid because they were reached through extensive, arms-length bargaining between sophisticated parties and there was no evidence of fraud or deceit. Therefore, the court held that "California law and a California forum apply to the instant dispute" and that "Belgian law is inapplicable to the interpretation of the Agreement."
The district court next held that the Agreement had terminated under its terms when Applied elected not to renew it, and concluded that according to Paragraph 9(f), Applied could not be liable "for compensation, reimbursement of damages on account of the loss of prospective profits or anticipated sales or on account of expenditures, inventory, investments, leases or commitments in connection with the business or goodwill of either Party." The district court specifically held that "goodwill indemnities are precluded and that Surgical shall take nothing due to the termination of the Agreement."
The district court rejected Surgical's argument that Paragraph 9(f) did not apply to goodwill indemnities. Surgical had argued that goodwill indemnities accrued "prior to the termination" of the Agreement and only happened to become due when the Agreement terminated. The district court rejected this argument because the only way that Applied could potentially incur goodwill liability would be upon a termination of the Agreement, and such liability, as the district court saw it, is expressly foreclosed by Paragraph 9(f).
Next, the district court declined to enjoin Surgical from pursuing relief in Belgium. The district court determined that "the Belgian Action alleges that certain pre-termination damages are due aside from termination-related goodwill indemnities and other termination-related damages," and that the Belgian claims under the Belgian Act were "potentially broader" than the issues under consideration by the district court. The district court did not explain further which claims were not dependent on the termination of the Agreement or otherwise did not "aris[e] out of th[e] Agreement" so as to be exempt from the contract's forum selection clause. Because it concluded that the Belgian claims were "potentially broader," the district court held that an anti-suit injunction would be inappropriate.
Finally, the district court held that Applied was entitled to its costs, expenses, and attorneys' fees because it prevailed on its motion for declaratory relief and the Agreement expressly provided for fees to a prevailing party.
The district court entered a final judgment on January 20, 2009. Only Applied appeals, and it appeals only the district court's denial of the anti-suit injunction.
We review a district court's denial of an anti-suit injunction for abuse of discretion. E. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 989 (9th Cir.2006). A district court's factual findings in connection with a denial of an antisuit injunction are reviewed for clear error. Id. The district court's interpretation of the underlying legal principles, however, is reviewed de novo. Id. When a district court makes an error of law, it is an abuse of discretion. Id.
In Gallo, at various stages of our analysis, we held that a district court, in evaluating a request for an anti-suit injunction, must determine (1) "whether or not the parties and the issues are the same, and whether or not the first action is dispositive of the action to be enjoined"; (2) whether the foreign litigation would "frustrate a policy of the forum issuing the injunction"; and (3) "whether the impact on comity would be tolerable." Id. at 991, 994 (quotation marks and citations omitted).
Because we conclude that Gallo is controlling, a discussion of that case is helpful to illuminate our analysis. In Gallo, the large California winemaker Gallo entered a distribution agreement with Ecuadorian...
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