E. & J. Gallo Winery v. Andina Licores S.A.

• Decision Date: 01 May 2006
• Docket Number: No. 05-16504.,05-16504.
• Citation: 446 F.3d 984
• Parties: E. & J. GALLO WINERY, Plaintiff-Appellant, v. ANDINA LICORES S.A., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

446 F.3d 984

E. & J. GALLO WINERY, Plaintiff-Appellant, v. ANDINA LICORES S.A., Defendant-Appellee.

No. 05-16504.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 15, 2006.

Filed May 1, 2006.

COPYRIGHT MATERIAL OMITTED

Tod L. Gamlen, Keith L. Wurster, Baker & McKenzie LLP, Palo Alto, CA, for appellant E & J Gallo Winery.

Sean T. O'Rourke, Borton Petrini & Conron, Fresno, CA, for appellee Andina Licores, S.A.

Appeal from the United States District Court for the Eastern District of California; Anthony W. Ishii, District Judge, Presiding. D.C. No. CV-05-00101-AWI.

Before J. CLIFFORD WALLACE, MICHAEL DALY HAWKINS, and SIDNEY R. THOMAS, Circuit Judges.

WALLACE, Circuit Judge.

E & J Gallo Winery (Gallo) appeals from the district court's denial of a preliminary injunction to enjoin Andina Licores S.A. (Andina) from proceeding with litigation in Ecuador. We have jurisdiction over this interlocutory appeal pursuant to 28 U.S.C. § 1292(a)(1). We reverse and remand to the district court with instructions to grant the injunction.

I

Gallo, a large winery headquartered in Modesto, California, entered into a distributorship agreement with Andina Licores CIA LTDA, a wine and liquor distributor headquartered in Guayaquil, Ecuador, in 1978. The distributor later changed its structure to become a corporation and changed its name to Andina Licores, S.A, the defendant-appellee in this appeal.

In 1987, Gallo and Andina executed an updated distributorship agreement, in which Andina was substituted for its predecessor-in-interest. Both the 1987 Agreement and the 1978 Agreement have the same forum selection and choice-of-law clauses in favor of California:

This agreement is entered into under the laws of the State of California, U.S.A., and shall be construed thereunder, and any cause of action arising between the parties, whether under this agreement or otherwise, shall be brought only in a court having jurisdiction and venue at the home office of Winery.

In April and May 2004, Gallo and Andina exchanged letters over various disputes, including whether Gallo had delivered three shipments late and whether Andina was an exclusive distributor of Gallo products. In July 2004, Andina appeared before the Sixth Civil Court in Guayaquil in connection with its dispute with Gallo. Although Gallo had identified its Ecuadorian lawyer in an April 19, 2004 letter to Andina, and although Andina and Gallo had been in a contractual relationship for over twenty-five years, Andina represented to the court that it did not know Gallo's whereabouts in Ecuador. For this reason, Andina asked the court to appoint a "curador": a guardian to act as counsel for Gallo and to appear for Gallo in any proceedings that Andina might file. Strangely, Andina was allowed to choose this guardian, and Andina selected Rita Yepez de Maher (Yepez), an attorney who apparently had only been admitted to practice law five months earlier. In support of its application to appoint Yepez as curador, Andina was required to provide affidavits of two people who could swear to Yepez's reliability and could recommend her. Andina submitted the affidavits of a day laborer and a student.

Andina filed suit against Gallo in the Second Civil Court of Guayaquil, Ecuador, on August 11, 2004, alleging a violation of Decree 1038-A, which was issued by the Ecuadorian military dictatorship in 1976 and had been repealed in 1997. The decree was intended to protect Ecuadorians who acted as agents, distributors, or representatives of foreign companies. Article 3 of the Decree maintained that the parties to a distributorship agreement between an Ecuadorian distributor and a foreign manufacturer could not include a unilateral right of termination in the agreement. Additionally, the Decree stated that any legal action brought under the law was to be heard by a judge at the Ecuadorian company's main residence, thus potentially invalidating all forum selection clauses. The Decree also provided for a "verbal summary trial," in which periods for discovery or response were drastically shortened and in which there was no opportunity to examine and cross-examine witnesses. In the event that a foreign manufacturer violated Article 3, it was liable to the local distributor for damages, which were calculated by multiplying a distributor's annual revenue from the agreement in the most recent fiscal year by the number of years of the distributor relationship. Decree 1038-A was repealed by the National Congress of Ecuador in 1997 by Law No. 22. The preamble to Law No. 22 stated that Decree 1038-A was contrary to the treaty of the World Trade Organization.

Andina sued under the Decree in spite of its revocation several years before. Invoking the Decree's method of damage calculation, Andina claimed $75,000,000 in damages. It also invoked the Decree's verbal summary trial procedures, which required Gallo to appear and assert its defenses before September 9, 2004. The period to submit evidence was limited to six business days: from September 10 to September 17, 2004. The Ecuadorian court was not required to consider any defense or evidence that Gallo did not submit within these time limitations.

The Ecuadorian court officially appointed Yepez as the curador on September 1. Yepez mailed a letter dated September 3 to Gallo in California. The letter, written in Spanish, informed Gallo of the lawsuit in Ecuador, of her appointment as Gallo's lawyer, and of the allegations in the complaint. However, the letter did not include a copy of the complaint and did not make any mention of the expedited trial procedure. Gallo declares that it did not receive the letter until September 16.

Without having made any other contact with Gallo, Yepez made an appearance on behalf of Gallo on September 9. Yepez asserted some defenses on Gallo's behalf but did not assert a defense based on the forum selection clause. Finally, on September 16, Yepez called Gallo's headquarters and informed it of the lawsuit. Gallo called its Quito attorney, whose name had been given to Andina in April, and eventually retained Xavier Castro to represent it in the Guayaquil action. Castro was unable to inform the Ecuadorian court of the forum selection clause defense before the September 9 deadline, and he did not have time to present any evidence before the close of evidence period.

On October 26, Gallo filed suit in California state court, seeking declaratory relief, injunctive relief, damages, and punitive damages. Although Andina was required by the 1987 Agreement to appoint CT Corporation as its agent for service of process, it had failed to do so; thus, Gallo served Andina in Ecuador. Andina removed the case to the district court. After various motions activity, Andina filed a motion to dismiss for lack of personal jurisdiction. Gallo opposed the motion to dismiss and filed a cross-motion for a preliminary injunction restraining Andina from pursuing the action in Ecuador and issuance of a letter rogatory. That cross-motion is the subject of this appeal.

On June 24, 2005, the district court denied both motions. The district court held that Andina had consented to jurisdiction; therefore, it denied Andina's motion to dismiss. The court also denied Gallo's motion for a preliminary injunction, basing its decision largely on considerations of international comity.

In the meantime, a dizzying array of judgments, appeals, and procedural motions continued in Ecuador. On August 8, 2005, the Second Civil Court dismissed the action in Ecuador, holding that the forum selection clause was valid and that the claim should be heard in California. Additionally, the district court held that Andina had improperly invoked the "curador" procedure. Andina appealed.

On August 10, Andina filed another lawsuit in the 29th Civil Court to disqualify the Second Civil Court. Because of this filing, the underlying action was temporarily removed from the Second Civil Court pending a decision by the 29th Civil Court. Two weeks later, Andina filed a motion in the 29th Civil Court to annul the Second Civil Court's August 8 decision. This motion was denied on September 15. Five days later, Andina filed another motion before the 29th Civil Court to revoke the order denying the annulment motion. The court denied this motion one week later. Undaunted, on September 29, Andina filed a motion before the 29th Civil Court to annul two Second Civil Court rulings in favor of Gallo. These motions are, apparently, still pending.

On September 26, Andina filed yet another motion in the 29th Civil Court, seeking to interrogate the judge of the Second Civil Court who had ruled in favor of Gallo, Judge Ukles Cornejo Bustos. Eventually, on November 15, 2005, Andina filed a complaint in the Superior Court of Justice of Guayaquil, asserting claims for damages against Judge Bustos. We understand that this motion and complaint are still pending in Ecuador.

II

The district court's denial of a preliminary injunction is normally reviewed for an abuse of discretion. Walczak v. EPL Prolong, Inc., 198 F.3d 725, 730 (9th Cir.1999). However, an anti-suit injunction presents particularly complex legal issues, especially because of international comity concerns. Although our overall review is for an abuse of discretion, "[t]he district court's interpretation of the underlying legal principles . . . is subject to de novo review and a district court abuses its discretion when it makes an error of law." Sw. Voter Registration Educ. Project v. Shelley, 344 F.3d 914, 918 (9th Cir.2003) (en banc). "We will reverse a denial of a preliminary injunction where the district court abused its discretion or based its decision on an erroneous legal standard or on clearly erroneous findings of fact." Sammartano v. First Jud. Dist. Court, 303 F.3d 959, 964 (9th Cir.2002).

A

Courts derive the ability to enter an anti-suit injunction from their equitable powers. Such injunctions allow ...