Holiday Isle, LLC v. Adkins

• Decision Date: 23 May 2008
• Docket Number: 1070202.
• Citation: 12 So.3d 1173
• Parties: HOLIDAY ISLE, LLC v. Beth ADKINS et al.
• Court: Alabama Supreme Court

12 So.3d 1173

HOLIDAY ISLE, LLC v. Beth ADKINS et al.

1070202.

Supreme Court of Alabama.

May 23, 2008.

C. William Daniels, Jr., Keith S. Rivers, and Thomas M. Wood of Bowron, Latta & Wasden, P.C., Mobile, for appellant.

Winston R. Grow of Patridge, Smith, P.C., Mobile, for appellees.

LYONS, Justice.

Holiday Isle, LLC, a developer of condominiums, appeals from a preliminary injunction entered by the Mobile Circuit Court preventing Holiday Isle from negotiating irrevocable letters of credit issued on behalf of J & R Investments, LLC, and Beth Adkins. See Rule 4(a)(1), Ala. R.App. P. Because the trial court exceeded its discretion in entering the injunction, we reverse and remand with instructions to dissolve the injunction.

I. Facts and Procedural History

On March 4, 2005, J & R Investments, LLC, agreed to purchase unit 105 and on March 7, 2005, Beth Adkins, David Adkins, and Nancy Whitten agreed to purchase unit 104 in a condominium complex being developed by Holiday Isle. J & R Investments, on the one hand, and Beth Adkins, David Adkins, and Nancy Whitten, on the other (hereinafter J & R Investments and the individual purchasers are referred to collectively as "the purchasers"), then entered into preconstruction purchase and escrow agreements with Holiday Isle for the condominium units, which were to be completed within two years of April 1, 2005. The purchase agreements provided that the earnest-money deposit could be satisfied by letters of credit issued to Holiday Isle in lieu of cash. The purchasers selected this option; J & E Investments delivered a letter of credit to Holiday Isle, and Beth Adkins, David Adkins, and Nancy Whitten delivered a letter of credit to Holiday Isle. The purchase agreements provided that upon default by the purchasers, Holiday Isle and/or an escrow agent "shall draw on the existing Letter of Credit in whole and create with the proceeds thereof a cash Deposit to be placed with Escrow Agent, with said funds to be delivered to [Holiday Isle] as liquidated damages."

On March 28, 2007, the Town of Dauphin Island issued the certificate of occupancy for the condominiums. On April 2, 2007, the purchasers conducted a pre-closing inspection of their respective condominium units. Within the following week the purchasers informed Holiday Isle that they would not close on their condominium units because, they said, Holiday Isle had not completed the condominiums by April 1, 2007, as required by the purchase agreements. The purchasers also requested that their letters of credit be returned to them. In response, Holiday Isle contended that it had met its obligations under the purchase agreements, and it set the closing date for the purchasers' condominium units for April 30, 2007.

On April 27, 2007, Beth Adkins and J & R Investments requested that the Mobile Circuit Court issue a temporary restraining order ("TRO") preventing Holiday Isle from drawing on the letters of credit. Contemporaneously with the filing of the application for the TRO, Beth Adkins, David Adkins, Nancy Whitten, and J & R Investments also sought a judgment declaring their rights under the purchase agreements, rescission of the purchase agreements, and an injunction preventing Holiday Isle from drawing on the letters of credit. On June 8, 2007, Holiday Isle moved to compel arbitration and dismiss or stay the proceedings. After a hearing on the motion on June 27, 2007, the trial court ordered the case to arbitration on July 30, 2007.

On October 11, 2007, Holiday Isle objected to the request for a TRO and an injunction by Beth Adkins and J & R Investments. Holiday Isle argued that the trial court lacked jurisdiction to enter an injunction against it because, it said, the arbitrator now had jurisdiction over all the disputes in the case. In the alternative, Holiday Isle argued that the purchasers could not satisfy the requirements for obtaining a TRO or an injunction. The purchasers replied that the trial court retained jurisdiction to enter an injunction and that the requirements for obtaining injunctive relief had been satisfied.

On October 18, 2007, the trial court appointed an arbitrator to resolve all the disputes between the parties and issued a preliminary injunction to prevent Holiday Isle from negotiating the letters of credit. The trial court's order states that "[b]ecause the Letters of Credit are inextricably intertwined with the arbitration issues, the Court hereby ENJOINS the negotiation of the Letters of Credit by whoever is holding them, until this matter is resolved by the arbitrator." (Capitalization in original.) Holiday Isle appealed the trial court's entry of the preliminary injunction to this Court.

II. Standard of Review

We have often stated: "The decision to grant or to deny a preliminary injunction is within the trial court's sound discretion. In reviewing an order granting a preliminary injunction, the Court determines whether the trial court exceeded that discretion." SouthTrust Bank of Alabama, N.A. v. Webb-Stiles Co., 931 So.2d 706, 709 (Ala.2005).

A preliminary injunction should be issued only when the party seeking an injunction demonstrates:

"`(1) that without the injunction the [party] would suffer irreparable injury; (2) that the [party] has no adequate remedy at law; (3) that the [party] has at least a reasonable chance of success on the ultimate merits of his case; and (4) that the hardship imposed on the [party opposing the preliminary injunction] by the injunction would not unreasonably outweigh the benefit accruing to the [party seeking the injunction].'"

Ormco Corp. v. Johns, 869 So.2d 1109, 1113 (Ala.2003)(quoting Perley v. Tapscan, Inc., 646 So.2d 585, 587 (Ala.1994)).

To the extent that the trial court's issuance of a preliminary injunction is grounded only in questions of law based on undisputed facts, our longstanding rule that we review an injunction solely to determine whether the trial court exceeded its discretion should not apply. We find the rule applied by the United State Supreme Court in similar situations to be persuasive: "We review the District Court's legal rulings de novo and its ultimate decision to issue the preliminary injunction for abuse of discretion." Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418, 428, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006); see also Justice Murdock's special writing while sitting as a judge on the Court of Civil Appeals in City of Dothan v. Eighty-Four West, Inc., 871 So.2d 54, 60 (Ala.Civ. App.2003) (Murdock, J., concurring specially on application for rehearing) (cited with approval in McGlathery v. Richardson, 944 So.2d 968, 970 (Ala.Civ.App. 2006)). To the extent they conflict with our holding today, previous expressions such as the one found in TFT, Inc. v. Warning Systems, Inc., 751 So.2d 1238, 1241-42 (Ala.1999) ("The applicable standard of review [of injunctive relief] depends on whether the trial court entered a preliminary injunction or a permanent injunction. A preliminary injunction is reviewed under an abuse-of-discretion standard, whereas a permanent injunction is reviewed de novo.") are hereby overruled.¹

III. Analysis

A. Jurisdiction

We must first determine whether the trial court had jurisdiction to issue the preliminary injunction after it ordered the dispute to arbitration. Holiday Isle contends that the trial court retained only limited jurisdiction once it compelled arbitration because, it says, the arbitration clause, which is identical in all the purchase agreements, does not reserve to the trial court any jurisdiction for temporary or preliminary equitable relief. Holiday Isle relies on the decision of the United States Court of Appeals for the Eighth Circuit in Manion v. Nagin, 255 F.3d 535, 538-39 (8th Cir.2001), holding that "[i]n a case involving the Federal Arbitration Act (FAA), courts should not grant injunctive relief unless there is `qualifying contractual language' which permits it." Because, Holiday Isle asserts, the purchase agreements do not contain "qualifying contractual language" permitting the trial court to grant injunctive relief, the purchase agreements provide no grounds for the trial court to issue the preliminary injunction.

The purchasers respond by arguing that because, when the trial court entered the preliminary injunction, the case was not under the jurisdiction of any arbitration association and an arbitrator had not been selected, "[t]he trial court, in essence, was the only forum by which these matters could be resolved." Purchasers' brief at p. 23. The purchase agreements expressly provide that any arbitration proceedings shall not be conducted through the American Arbitration Association ("AAA"). However, the purchasers note that the purchase agreements also provide that disputes are to be submitted to arbitration under the Commercial Rules of the AAA or as the parties may later agree in writing. The purchasers further note that the Commercial Arbitration Rules of the AAA allow a party to seek interim measures from a judicial authority. Rule R-34(c) of the AAA's Commercial Rules provides: "A request for interim measures addressed by a party to a judicial authority shall not be deemed incompatible with the agreement to arbitrate or a waiver of the right to arbitrate." Nothing before us indicates that the parties, by agreement entered into after the purchase agreements, displaced the choice of the AAA's Commercial Rules set forth in the purchase agreements.

The purchasers also note that in Drago v. Holiday Isle, L.L.C., 537 F.Supp.2d 1219 (S.D.Ala.2007), Holiday Isle also relied upon Nagin to argue that the federal district court lacked jurisdiction to issue an injunction because the case had been stayed pending arbitration. The court in Drago found that Nagin reflected a minority view and noted that the "majority of federal courts ... have concluded that in limited situations a binding arbitration clause does not bar a plaintiff from...