Dollar Rent a Car of Washington, Inc. v. Travelers Indem. Co.

• Decision Date: 24 October 1985
• Docket Number: Nos. 84-6199,84-6454,s. 84-6199
• Citation: 774 F.2d 1371
• Parties: DOLLAR RENT A CAR OF WASHINGTON, INC.; Dollar Rent a Car of Cleveland, Inc.; and Dollar Rent a Car Systems, Inc., Plaintiffs-Appellees, v. The TRAVELERS INDEMNITY COMPANY, a corporation; the Travelers Insurance Company of Hartford Connecticut, a corporation; and Constitution State Management Company, a corporation, Defendants-Appellants. VIKING REINSURANCE COMPANY, LTD., a corporation, Plaintiff-Appellee, v. The TRAVELERS INDEMNITY COMPANY, a corporation; the Travelers Insurance Company of Hartford Connecticut, a corporation; and Constitution State Management Company, a corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1371

774 F.2d 1371

DOLLAR RENT A CAR OF WASHINGTON, INC.; Dollar Rent a Car of

Cleveland, Inc.; and Dollar Rent a Car Systems, Inc., Plaintiffs-Appellees, v. The TRAVELERS INDEMNITY COMPANY, a corporation; the

Travelers Insurance Company of Hartford Connecticut, a

corporation; and Constitution State Management Company, a

corporation, Defendants-Appellants.

VIKING REINSURANCE COMPANY, LTD., a corporation, Plaintiff-Appellee, v. The TRAVELERS INDEMNITY COMPANY, a corporation; the

Travelers Insurance Company of Hartford Connecticut, a

corporation; and Constitution State Management Company, a

corporation, Defendants-Appellants.

Nos. 84-6199, 84-6454.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 4, 1984.

Decided Oct. 24, 1985.

Ball, Hunt, Hart, Brown & Baerwitz, Joseph A. Ball, Thomas J. Leanse, Paul R. Pearlson, Long Beach, Cal., Law Offices of Theodore F. Schwartz, Theodore F. Schwartz, Clayton, Mo., Stephen A. Caruso, Los Angeles, Cal., for plaintiffs-appellees.

Barger & Wolen, Kent Keller, Royal F. Oakes, Los Angeles, Cal., for defendants-appellants.

Appeal from the United States District Court for the Central District of California.

Before BROWNING and CHAMBERS, Circuit Judges, and COYLE, ^* District Judge.

COYLE, District Judge:

The Travelers Indemnity Company, The Travelers Insurance Company of Hartford Connecticut, and Constitution State Management Company (Travelers) appeal from an order for preliminary injunction in favor of Dollar Rent A Car of Washington, Inc., Dollar Rent a Car of Cleveland, Inc. and Dollar Rent a Car Systems, Inc. (Dollar) and in favor of Viking Reinsurance Company, Ltd. (Viking). Travelers also appeals from a subsequent order that they had violated the terms of the preliminary injunction and holding them in civil contempt. ¹

A. Facts.

Dollar, a national car rental company, requires each of its licensees and subsidiaries who operate automobile rental businesses to carry a fixed amount of insurance coverage. In addition, landlords of the licensees and subsidiaries, such as airport authorities, may also require insurance coverage. In 1982, Dollar commenced negotiations with Travelers to provide this insurance coverage and to permit Viking of Turks and Caicos, a subsidiary of Dollar, to reinsure the business written by Travelers for Dollar licensees and subsidiaries. As a result of these negotiations, Travelers issued policies of insurance to Dollar licensees and subsidiaries, which policies provide in pertinent part: "10. Cancellation. This policy may be cancelled by [Travelers] by mailing to the named insured ... written notice stating when not less than ten days thereafter such cancellation shall be effective." In addition, a Reinsurance Agreement between Travelers and Viking was executed for the period April 1, 1982 to July 1, 1983. The Reinsurance Agreement provided in pertinent part: "[Viking] will provide at the request of [Travelers], Letter(s) of Credit under which drafts may be drawn by [Travelers] ... in amount or amounts as determined by [Travelers], as security for payment of [Viking's] obligations under this Reinsurance Agreement." The Reinsurance Agreement further provided for arbitration "[i]f an irreconcilable difference of opinion should arise as to the interpretation of this Reinsurance Agreement." Dollar guaranteed Viking's performance under the Reinsurance Agreement and agreed to provide the letters of credit referred to in the Reinsurance Agreement. In June, 1982, Travelers requested and received a $500,000 letter of credit. In June, 1983, it was agreed that the Reinsurance Agreement would be extended through July 1, 1984. Travelers prepared and signed a new Reinsurance Agreement which was sent to Dollar for signature by Viking. However, the new Reinsurance Agreement was never signed by Viking. In November, 1983, Travelers requested and received a $200,000 letter of credit. In April, 1984, Travelers requested an additional $1,440,000 letter of credit. Dollar and Viking refused to provide this letter of credit on the ground that Travelers had no valid reason to demand additional security since Viking had never failed to honor its obligation to reimburse Travelers for policy losses. Thereafter, Travelers notified Dollar that it would not renew those 54 of the 90 Dollar subsidiaries or licensees whose policies with Travelers expired on July 1, 1984. On June 1, 1984, Travelers gave notice to those 54 Dollar subsidiaries or licensees that their policies would not be renewed.

Viking filed an action in the Los Angeles Superior Court to compel Travelers to arbitrate the disputes between the parties and to enjoin Travelers from making further demand for letters of credit, drawing upon the existing letters of credit and terminating existing policies issued to Dollar subsidiaries and licensees. Contemporaneously, Dollar filed an action in the Los Angeles Superior Court seeking damages and injunctive relief. Temporary restraining orders were issued in both actions but, before the motions for preliminary injunction could be heard, the actions were removed to United States District Court for the Central District of California. The actions were consolidated by order of the district court. Dollar and Viking moved the district court for an order compelling the parties to submit their disputes to arbitration pursuant to the provision in the Reinsurance Agreement and for a preliminary injunction enjoining Travelers from terminating and not renewing existing insurance policies issued to Dollar subsidiaries and licensees pending resolution of arbitration, and restraining Travelers from making further demand upon Dollar and Viking for letters of credit, from drawing upon existing letters of credit, and from proceeding against Dollar until the disputes are resolved through arbitration or otherwise. On July 20, 1984, the district court entered its order compelling arbitration. The order further prohibits Travelers from terminating or cancelling or attempting to terminate or cancel any existing insurance policies issued to any subsidiary or licensee pending resolution of the arbitration proceeding, prohibiting Travelers from making any further demand upon Dollar or Viking for additional letters of credit and from drawing upon existing letters of credit pending resolution of the arbitration proceeding, and requiring that Travelers maintain the status quo pending resolution of the arbitration proceeding. On August 2, 1984, Travelers appealed this order granting the preliminary injunction.

Thereafter, pursuant to motion brought by Dollar and Viking, the district court found Travelers in contempt for its failure to renew those insurance policies which had been terminated prior to entry of the preliminary injunction. Travelers also has appealed this contempt order.

B. Preliminary Injunction.

"The grant or denial of a motion for preliminary injunction lies within the discretion of the district court. Its order granting or denying the injunction will be reversed only if the district court relied on an erroneous legal premise or abused its discretion." Sports Form, Inc. v. United Press International, Inc., 686 F.2d 750, 752 (9th Cir.1982). A district court's order is reversible for legal error if, in applying the appropriate standards, the court misapprehends the law with respect to the underlying issues in the litigation. Wright v. Rushen, 642 F.2d 1129, 1132 (9th Cir.1981). To determine whether there has been an abuse of discretion, the reviewing court "must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.... The [reviewing] court is not empowered to substitute its judgment for that of the [district court]." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971). "Abuse of discretion may also occur when the district court rests its conclusions on clearly erroneous findings of fact." Sports Form, Inc. v. United Press International, Inc., 686 F.2d at 752. A finding of fact is clearly erroneous when the reviewing court on the entire evidence is "left with the definite and firm conviction that a mistake has been committed." Edinburgh Assurance Co. v. R.L. Burns Corp., 669 F.2d 1259, 1261 (9th Cir.1982) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)). ²

The traditional equitable criteria for granting preliminary injunctive relief are (1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if the preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest (in certain cases). Sierra Club v. Hathaway, 579 F.2d 1162, 1167 (9th Cir.1978). "The moving party may meet its burden by demonstrating either (1) a combination of probable success on the merits and the possibility of irreparable injury or (2) that serious questions are raised and the balance of hardships tips sharply in its favor." Los Angeles Memorial Coliseum Commission v. National Football League, 634 F.2d 1197, 1201 (9th Cir.1980). These are not separate tests, but the outer reaches "of a single continuum." Benda v. Grand Lodge of...