Ferry-Morse Seed Co. v. Food Corn, Inc., FERRY-MORSE

• Decision Date: 19 March 1984
• Docket Number: FERRY-MORSE,No. 83-1385,83-1385
• Citation: 729 F.2d 589
• Parties: SEED CO., Plaintiff/Appellee, v. FOOD CORN, INC., Defendant/Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 589

729 F.2d 589

FERRY-MORSE SEED CO., Plaintiff/Appellee, v. FOOD CORN, INC., Defendant/Appellant.

No. 83-1385.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 15, 1983.

Decided March 19, 1984.

Shook, Hardy & Bacon, Gene E. Voigts, Richard E. McLeod, Kansas City, Mo., for plaintiff/appellee.

Paden, Welch, Martin, Albano & Graeff, P.C., Michael W. Manners, Independence, Mo., for defendant/appellant.

Before McMILLIAN, JOHN R. GIBSON and BOWMAN, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Food Corn, Inc. appeals from a preliminary injunction ordering that it turn over six to seven thousand bags of seed corn to Ferry-Morse Seed Company. Food Corn argues that the district court ¹ abused its discretion in entering the order because there was insufficient evidence that Ferry-Morse would suffer irreparable injury and Ferry-Morse failed to prove that it was likely to succeed on the merits of an arbitration claim. We affirm the order of the district court.

Ferry-Morse brought this action against Food Corn to compel arbitration under an exclusive license agreement between the two parties and for a preliminary injunction in aid of arbitration. Food Corn had developed a white-cob, yellow-kernel seed corn which Ferry-Morse desired to market commercially. Ferry-Morse had marketed the seed corn in the first part of 1982 under a less formal agreement with Food Corn and entered into the exclusive license agreement in July, 1982. The agreement gave Ferry-Morse the sole right to market Food Corn's new strain of food corn. The agreement provided that Food Corn was to be paid royalties based on a percentage of the retail price, which was defined as the "per unit list price of the seed corn sold by Ferry-Morse." The underlying dispute between the parties revolved around the meaning of the term "retail price." Ferry-Morse was extremely interested in the food corn product because it gave it an opportunity to get into a new market ahead of competitors without years of research that would otherwise be necessary. There were no alternative sources of supply from which Ferry-Morse could obtain the food corn seed.

A hearing was held on the motion for a preliminary injunction, and on February 17 the district court entered a preliminary injunction ordering Food Corn not to market the hybrid seed corn or any other items subject to the exclusive license agreement to any party other than Ferry-Morse, and to refrain from other acts as provided in the exclusive license agreement. ² In granting the preliminary injunction, the district court found that Ferry-Morse would suffer irreparable harm if deprived of the opportunity to market the unique seed corn and found that Ferry-Morse was likely to prevail on the merits. ³

Ferry-Morse then sought a further order compelling Food Corn to deliver the seed corn under the terms of the contract, and after a hearing on March 10, 1983, the court entered an order ⁴ modifying the preliminary injunction entered February 17 by adding a paragraph that Food Corn "promptly ... deliver seed corn to plaintiff as required by the exclusive license agreement." The court's order requiring Food Corn to deliver the seed corn was based on its findings that Food Corn would not be able to adequately market the seed corn itself and allowing Ferry-Morse to continue marketing the seed corn would serve the economic interests of both parties. ⁵

Food Corn argues that a substantially heavier burden rests upon a party seeking to obtain a mandatory injunction rather than simply a prohibitory injunction, and that Ferry-Morse failed to show substantial evidence of irreparable harm and any probability that it will succeed on the merits of its claim for arbitration.

We have recently clarified the standards to be considered in granting or denying a preliminary injunction. In Dataphase Systems, Inc. v. C.L. Systems, Inc., 640 F.2d 109, 114 (8th Cir.1981), we stated:

In sum, whether a preliminary injunction should issue involves consideration of (1) the threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.

Our particular inquiry is whether in granting a preliminary injunction the district court abused its discretion. Dataphase, 640 F.2d at 114. See also Planned Parenthood v. Citizens for Community Action, 558 F.2d 861, 866 (8th Cir.1977).

The district court made the required analysis under the Dataphase standard, and its conclusions on irreparable harm and probability of success on the merits are the only issues before us. The findings with respect to irreparable harm are supported by evidence in the record and are not clearly erroneous. The seed corn was found to be unique and the competitive disadvantage Ferry-Morse would suffer if it did not obtain the seed demonstrate a classic situation for preliminary injunctive relief. See Payroll Express Corp. v. Aetna Casualty and Surety Co., 659 F.2d 285, 292 (2d Cir.1981); Campbell Soup Co. v. Wentz, 172 F.2d 80, 82 (3d Cir.1948); D. Dobbs, Handbook on the Law of Remedies Sec. 12.18 (1973).

A more troublesome issue is the probability of success requirement. The findings of the district court are here somewhat more tenuous, but as observed in Dataphase, "where the movant has raised a substantial question and the equities are otherwise strongly in his favor, the showing of success on the merits can be less." 640 F.2d at 113. The district court specifically found that there was sufficient evidence to show the existence of an arbitration agreement and its enforceability to allow it to conclude that there was a substantial question presented as to that issue. It pointed to the lack of any controverting evidence from Food Corn. While the court went on to state that it "will assume that plaintiff is likely to prevail on the merits," we do not read this as eroding its conclusion that the elements of the Federal Arbitration Act, 9 U.S.C. Secs. 1-14 (1976) had been proven and that arbitration would thus be compelled. ⁶ We cannot conclude that the district court erred in its determination that the case was arbitrable and in its further determination that without an injunction the efficacy of an eventual order compelling arbitration might be drastically impaired.

Food Corn argues that because the underlying issue is one of fraud in the inducement, which is not arbitrable as a matter of law, Ferry-Morse did not meet its burden of showing that it would ultimately prevail on its claim to compel arbitration. The district court was not persuaded that Food Corn's allegations of fraud were sufficient to bar arbitration. ⁷ Even where there exists a valid fraud claim falling outside the scope of the arbitration clause, arbitration should be compelled if the arbitrator's decision could render the fraud claim moot. See Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979). Food Corn claims it was deceived as to the meaning of "retail price." Should an arbitrator determine that Ferry-Morse's definition is correct, Food Corn's fraud claim would be moot.

Food Corn also argues that more stringent requirements govern the granting of a mandatory preliminary injunction than a prohibitory preliminary injunction. See Wetzel v. Edwards, 635 F.2d 283, 286 (4th Cir.1980); Citizens Concerned for Separation of Church and State v. City and County of Denver, 628 F.2d 1289, 1299 (10th Cir.1980), cert. denied, 452 U.S. 963, 101 S.Ct. 3114, 69 L.Ed.2d 975 (1981); Martinez v. Mathews, 544 F.2d 1233, 1243 (5th Cir.1976). While these general statements have been made by courts, some, such as in Martinez, have granted mandatory relief. The primary function of a preliminary injunction is to preserve the status quo until, upon final hearing, a court may grant full, effective relief. Crowley v. Local No. 82, 679 F.2d 978, 995 (1st Cir.1982). While the granting of preliminary injunctions is not favored unless the right to such relief is clearly established, 11 C. Wright and A. Miller, Federal Practice & Procedure Sec. 2942, at 368, where the status quo is a condition not of rest, but of action, and the condition of rest (in this case the refusal to deliver the seed corn) will cause...