Mecom Equipment, LLC v. Hyundai Construction Equipment Americas, Inc.

Filing 24

ORDER signed by Judge Garland E. Burrell, Jr on 8/8/2013 ORDERING 15 Motion for Preliminary Injunction is DENIED. (Waggoner, D)

Mecom Equipment, LLC v. Hyundai Construction Equipment Americas, Inc.

Doc. 24

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IN THE UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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MECOM EQUIPMENT, LLC, a
California limited liability
company,
Plaintiff,

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v.

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HYUNDAI CONSTRUCTION EQUIPMENT
AMERICAS, INC. f/k/a HYUNDAI
CONSTRUCTION EQUIPMENT USA,
INC., an Illinois corporation
principally operating in the
State of Georgia,
Defendant.
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2:13-CV-01287-GEB-EFB
ORDER*

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Plaintiff Mecom Equipment, LLC (“Plaintiff”) moves for a

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preliminary injunction that would enjoin Defendant Hyundai Construction

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Equipment Americas, Inc. (“Defendant”) “from terminating or otherwise

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modifying the discount pricing structure that [Defendant] has made

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available to [Plaintiff, which are] described in Exhibit B and Exhibit

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C to [Plaintiff’s] Verified Complaint.” (Pl.’s Not. of Mot. & Mot. for

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Prelim. Inj. (“Pl.’s Mot.”) 1:9–11, ECF No. 15.) Defendant opposes the

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motion.
I. BACKGROUND

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“[Plaintiff] sells construction equipment manufactured by

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[Defendant] both at retail (as a dealer in [Plaintiff]’s own right) and

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*

This matter is deemed suitable for decision without oral
argument. E.D. Cal. R. 230(g).
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Dockets.Justia.com

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at wholesale (to [Plaintiff]’s sub-dealers). [Plaintiff] is engaged

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primarily in the retail sale of construction equipment, within the

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meaning of the California Equipment Dealers Act.” (Verified Complaint

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(“VC”) ¶ 27, ECF No. 1.) “[Plaintiff] has operated for many years as a

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dealer/distributor of [Defendant]’s construction equipment and, in doing

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so, built up a substantial amount of goodwill in regard to the equipment

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at issue.” (Id. ¶ 28.)

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“Plaintiff currently purchases equipment from [Defendant]

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pursuant to a written Master Distribution Agreement (see Exhibit A[,]

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. . . the ‘Agreement’), as modified by a discount agreement executed

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with [Defendant] in 2010[,] which is effective at least through 2014

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(see Exhibit B[,] . . . the ‘Amendment.’” (Id. ¶ 3.) “The Amendment

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provides [Plaintiff] with discounts [that] allow [Plaintiff] to purchase

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Hyundai construction equipment at wholesale prices for subsequent re-

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sale by [Plaintiff]” so that Plaintiff and Defendant could “penetrat[e]

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markets in geographic areas where [Defendant] had not previously enjoyed

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substantial sales of its construction equipment.” (Id. ¶¶ 4–5 (citing

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VC, Ex. B).) “In reliance on the Exhibit B discount structure being in

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effect at least through 2014 . . . , [Plaintiff] completely modified its

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business plans to specialize in Hyundai products and to service Hyundai

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equipment purchased by [Plaintiff]’s customers.” (Id. ¶ 9.)

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“[Defendant] issued written notice to [Plaintiff] dated May

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22, 2013 that [Defendant] will unilaterally cease to honor the . . .

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Amendment as of July 1, 2013, even though the discount structure

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established by the Amendment was, by its terms, to be in effect

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throughout

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“[Defendant]’s Sales Manager Kirk Gillette advised [Plaintiff] that

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. . . [Defendant] would only sell [Plaintiff] construction equipment at

both

2013

and

2014.”

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(Id.

¶

12.)

In

that

letter,

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‘standard

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volume’–i.e., not at the discounts negotiated in the Exhibit B and

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Exhibit C Amendments to the underlying Agreement.” (Id. ¶ 45.)

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dealer

purchase

discounts

.

.

.

based

on

annual

sales

II. LEGAL STANDARD

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“A preliminary injunction is ‘an extraordinary and drastic

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remedy, one that should not be granted unless the movant, by a clear

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showing, carries the burden of persuasion.’” Lopez v. Brewer, 680 F.3d

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1068, 1072 (9th Cir. 2012) (quoting Mazurek v. Armstrong, 520 U.S. 968,

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972 (1997) (per curiam)). “A plaintiff seeking a preliminary injunction

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must establish that he is likely to succeed on the merits, that he is

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likely to suffer irreparable harm in the absence of preliminary relief,

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that the balance of equities tips in his favor, and that an injunction

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is in the public interest.” Winter v. Natural Res. Def. Council, 555

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U.S. 7, 20 (2008) (citing Munaf v. Geren, 553 U.S. 674, 689–90 (2008);

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Amoco Prod. Co. v. Gambell, 480 U.S. 531, 542 (1987); Weinberger v.

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Romero–Barcelo, 456 U.S. 305, 311–12 (1982)).

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Further, the Ninth Circuit’s “‘serious questions’ approach

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survives Winter when [it is] applied as part of the four-element Winter

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test.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135

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(9th Cir. 2011). In other words, “‘serious questions going to the

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merits’ and a balance of hardships that tips sharply towards the

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plaintiff can support issuance of a preliminary injunction, so long as

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the plaintiff also shows that there is a likelihood of irreparable

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injury and that the injunction is in the public interest.” Id.

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III. DISCUSSION

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Plaintiff argues that Defendant did not have the right to

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“cease to honor the . . . Amendment as of July 1, 2013 ([since] the

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discount structure established by the Amendment was, by its terms, to be
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in force at least throughout both 2013 and 2014.” (Pl.’s Mot. 3:5–8

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(citing VC, Ex. D; VC ¶¶ 12, 45).) Plaintiff contends that Defendant has

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violated

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prescribes:

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the

California

Equipment

Dealers

Act

(“CEDA”),

which

Any dealer may bring an action against a
supplier
in
any
court
of
competent
jurisdiction for damages sustained by the
dealer as a consequence of the supplier’s
violation of any provisions of this chapter,
together with costs and reasonable attorney’s
fees.
The
dealer
may
also
be
granted
injunctive
relief
against
unlawful
termination, cancellation, nonrenewal, and
change in competitive circumstances. The
remedies set forth in this action shall not be
deemed exclusive and shall be in addition to
any other remedies permitted by law.

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Cal. Bus. & Prof. Code § 22925. Plaintiff argues that it “now moves for

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a Preliminary Injunction barring [Defendant] from altering the pre-

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existing price structure,” which “[Defendant] has agreed to keep . . .

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in

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injunction.” (Pl.’s Mot. 1:13–14, 1:11–13.)

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A. Statutory Injunctive Relief

effect

pending

the

hearing

of

[the]

motion

for

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Plaintiff argues that

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preliminary

in statutory enforcement cases such as this
one, where the moving party has met the
‘probability
of
success’
prong
of
the
preliminary
injunction
test,
the
court
presumes the moving party has met the
‘possibility of irreparable injury’ prong
because the passage of the statute is itself
an implied finding by the legislature that
violations will harm the public. Therefore,
further inquiry into irreparable injury is
unnecessary.

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(Id. 5:19–24 (citing Miller v. Cal. Pac. Med. Ctr., 19 F.3d 449, 459

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(9th Cir. 1994)).) Plaintiff further argues that it “need only establish

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a likelihood of success on the merits to be entitled to an injunction”

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since “[it] is entitled to statutory injunctive relief to prevent this
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material

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distribution agreement.” (Id. 6:6–7, 1:9–11.)

change

in

the

competitive

circumstances

of

[Plaintiff]’s

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Defendant counters that Plaintiff’s reliance on Miller “is

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incorrect” since “the Ninth Circuit explicitly overturned Miller and

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found that ‘the preliminary injunction standard articulated by the

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Supreme Court in Winter . . . applies.’” (Def.’s Opp’n 5:19–23 (quoting

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Small v. Operative Plasterers’ & Cement Masons’ Int’l Ass’n Local 200

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AFL-CIO, 611 F.3d 483, 490 (9th Cir. 2010)).) Defendant is correct. The

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Ninth Circuit states in Small: “Unlike under the Miller standard, we do

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not presume irreparable harm; rather, applying the Winter standard, we

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ask whether the failure to issue an injunction ‘likely’ would cause

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irreparable harm.” Small, 611 F.3d at 494 (citing McDermott ex rel. NLRB

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v. Ampersand Publ’g, LLC, 593 F3d 950 (9th Cir. 2010)). “Under Winter,

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plaintiffs must establish that irreparable harm is likely, not just

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possible, in order to obtain a preliminary injunction.” Alliance for the

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Wild Rockies, 632 F.3d at 1131 (citing Winter, 555 U.S. at 22).

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B. Irreparable Harm

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Plaintiff contends that “[Defendant]’s plan to discontinue

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making equipment available to [Plaintiff] pursuant to the Exhibit B

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discount structure will . . . irreparably harm [Plaintiff] in that

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[Defendant]’s conduct, if not enjoined by this Court, will destroy the

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goodwill currently enjoyed by [Plaintiff] in regard to its ongoing sale

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of Hyundai construction equipment to [Plaintiff]’s sub-dealers.” (Id.

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3:23–26.) Plaintiff also contends that “[Defendant] effectively seeks to

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strip [Plaintiff] of the goodwill that [it] has built up with its sub-

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dealers as a Master Distributor.” (Id. 4:10–11 (citing VC ¶¶ 17–18).)

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Defendant rejoins that “to meet its burden, [Plaintiff] must

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‘demonstrate, by the introduction of . . . evidence . . . that the harm
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is real, imminent and significant, not just speculative or potential.’”

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(Id. 6:27–7:1 (quoting Volkswagen AG v. Verdier Microbus & Camper, Inc.,

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No. C 09-00231 JSW, 2009 WL 928130, at *6 (N.D. Cal. Apr. 3, 2009)).)

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Defendant further argues that “[t]he claimed ‘threat [of irreparable

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harm] must be shown by probative evidence and conclusory affidavits are

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insufficient.’” (Id. 7:7–8 (quoting Mandrigues v. World Savings, Inc.,

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No. C 07-4497 JF (RS), 2009 WL 160213, at *3 (N.D. Cal. Jan. 20, 2009)

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(citation omitted)) (second alteration in original).)

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“[I]ntangible injuries, such as damage to . . . goodwill[]

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qualify as irreparable harm.” Rent-A-Ctr., Inc. v. Canyon Television &

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Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 2001). “Although the

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loss

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determining the existence of irreparable injury, there must be credible

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. . . evidence that such damage threatens Plaintiff[’s] business with

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termination.” Dotster, Inc. v. Internet Corp. for Assigned Names &

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Numbers, 296 F. Supp. 2d 1159, 1163-64 (C.D. Cal. 2003) (citing Am.

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Passage Media Corp. v. Cass Commc’ns, Inc., 750 F.2d 1470, 1473 (9th

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Cir. 1985); Metromedia Broad. Corp. v. MGM/UA Entm’t Co., Inc., 611 F.

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Supp. 415, 426 (C.D. Cal. 1985)). “Mere financial injury . . . will not

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constitute irreparable harm if adequate compensatory relief will be

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available in the course of litigation.” Goldie’s Bookstore, Inc. v.

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Superior Court of State of Cal., 739 F.2d 466, 471 (9th Cir. 1984)

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(citing Sampson v. Murray, 415 U.S. 61, 90 (1974); L.A. Mem’l Coliseum

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Comm’n v. Nat’l Football League, 634 F.2d 1197, 1202 (9th Cir. 1980)).

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Further, “[s]peculative injury does not constitute irreparable injury

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sufficient to warrant granting a preliminary injunction.” Caribbean

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Marine Servs. Co., Inc. v. Baldrige, 844 F.2d 668, 674 (9th Cir. 1988)

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(citing Goldie’s Bookstore, Inc., 739 F.2d at 472)).

of

goodwill

and

reputation

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are

important

considerations

in

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Plaintiff attaches declarations in support of its position

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that it will suffer irreparable harm absent an injunction. Bill Zehender

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(“Zehender”), a managing member of Plaintiff, declares: “Any action by

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[Defendant] to unilaterally terminate the Exhibit B discount structure

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will also irreparably harm [Plaintiff] because [Plaintiff] will be

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deprived of the intangible value of all of [Plaintiff]’s sub-dealer

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recruitment efforts” and “will, likewise, destroy the goodwill built up

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by [Plaintiff] over many years of service as a Master Distributor for

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[Defendant] (e.g., with [Plaintiff]’s multiple sub-dealers).” (Zehender

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Decl. ¶¶ 19–20, ECF No. 15-3.) Plaintiff also submits declarations from

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principals

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business, in which each principal declares: “[I]f [sub-dealer] was able

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to purchase Hyundai-brand equipment from [Plaintiff] only at prices

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which are higher than the prices charged to Hyundai dealers who make

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purchases directly from Hyundai, [sub-dealer] would obviously cease

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buying Hyundai-brand equipment from [Plaintiff].” (Declaration of Mark

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Lawrence ¶ 4, ECF No. 23-2; Declaration of Brant Ambrose ¶ 4, ECF No.

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23-3; Declaration of Dick Lindsay ¶ 4, ECF No. 23-4; Declaration of

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Walter Azevedl ¶ 4, ECF No. 23-5.)

at

four

separate

sub-dealers

with

whom

Plaintiff

does

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These declarations evince that Plaintiff will likely lose

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business from its sub-dealers, and the associated goodwill of that

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business, if Defendant is not enjoined. However, Plaintiff avers in its

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Verified Complaint that “[i]mmediately prior to filing this [action,

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Plaintiff] filed its Demand for Arbitration with the AAA,” and there is

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no indication from any sub-dealer principal that any sub-dealer would

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cease doing

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arbitration proceeding. (VC ¶ 23.) Therefore, Plaintiff’s argument that

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it will lose the sub-dealer business on a permanent basis has not been

business

with

Plaintiff

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if

Plaintiff prevails

in the

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shown to “constitute irreparable injury sufficient to warrant granting

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a preliminary injunction.” Caribbean Marine Servs. Co., Inc., 844 F.2d

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at 674.

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Further, Plaintiff alleges that “[it] sells approximately 90%

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of the equipment purchased from [Defendant] to retail customers.” (VC

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¶ 27.) Plaintiff also avers in its Verified Complaint that “[it] would

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be able to continue to make sales of equipment at retail to its own

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customers.” (Pl.’s Reply 20:1–2.) Therefore, at most, Plaintiff stands

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to lose 10 percent of its business related to Defendant’s equipment if

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Defendant alters its discount structure. However, Plaintiff has provided

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no “credible . . . evidence that such damage threatens Plaintiff[’s]

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business with termination.” Dotster, Inc., 296 F. Supp. 2d at 1163-64.

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Plaintiff has also failed to provide evidence concerning what

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percentage of Plaintiff’s overall business is involved with the sale of

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Defendant’s

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showing that “the annual impact of the change from the special discount

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program under the Addendum to the normal dealer discount program is less

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than 10% of [Plaintiff]’s total annual sales.” (Decl. of Kirk Gillette

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(“Gillette Decl.”) ¶ 18, ECF No. 20-3.) Defendant bases this calculation

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on the following information: (1) “[i]n the 12 months from July 1, 2012

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to June 30, 2013, [Plaintiff] purchased 63 pieces of new equipment from

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[Defendant] at a total cost of approximately $8.5 million,” (Gillette

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Decl. ¶ 15); (2) “[h]ad the same purchases been made under the normal

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dealer discount program set forth in [Defendant]’s May 22, 2013 letter

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to [Plaintiff], [Plaintiff] would have paid [Defendant] approximately

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$10 million[, resulting in] an approximate $1.5 million difference,”

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(id.);

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[Plaintiff]’s sales from all sources for 2012” with total sales of

(3)

equipment

to

Plaintiff’s

sub-dealers.

“Business

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Defendant

Plan

[for

submitted evidence

2013]

sets

forth

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$15,907,000. (Id. ¶ 17.) Therefore, the discount pricing difference

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represents only 9.43 percent of Plaintiff’s total sales.

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Although “[m]ere financial injury . . . will not constitute

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irreparable harm,” Goldie’s Bookstore, Inc., 739 F.2d at 471, “[t]he

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threat of being driven out of business is sufficient to establish

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irreparable harm.” L.A. Mem’l Coliseum Comm’n, 634 F.2d at 1203. “The

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majority of district courts addressing this issue have concluded that a

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loss of at least thirty percent of a plaintiff’s business can constitute

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irreparable harm.” Phany Poeng v. United States, 167 F. Supp. 2d 1136,

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1143 (S.D. Cal. 2001) (emphasis added) (collecting cases); see also

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Blind Doctor Inc. v. Hunter Douglas, Inc., No. C-04-2678 MHP, 2004 WL

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1976562, at *2 (N.D. Cal. Sept. 7, 2004) (denying motion for preliminary

13

injunction

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available to [plaintiff] for retail sale” when “statistical evidence

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[showed] that [defendant’s] products accounted for only 37 percent of

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[plaintiff’s] sales”); RasterOps v. Radius, Inc., 861 F. Supp. 1479,

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1497

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understand how a product group that accounts for a relatively small

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percentage of the company’s sales [(about five to nine percent)] . . .

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could possibly play such a vital role in [plaintiff’s] future.”); Dimare

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Fresh, Inc. v. Sun Pac. Mktg. Coop., Inc., No. CIV-F-06-1265 AWI SMS,

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2006 WL 2686969, at *3 (E.D. Cal. Sept. 19, 2006) (finding no showing of

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irreparable injury when plaintiff “ha[d] not stated what percentage of

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its total revenues (as opposed to percentage of tomato business) would

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be impacted”); Fin. & Sec. Prods. Ass’n v. Diebold, Inc., No. C 04-04347

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WHA, 2005 WL 1629813, at *6 (C.D. Cal. July 8, 2005) (finding no

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irreparable injury when plaintiff’s evidence of harm to third parties

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amounted to only “a small percentage of their overall business”).

(N.D.

“requiring

Cal.

1994)

[defendant]

(“[T]he

to

court

9

continue

finds

making

it

very

its

products

difficult

to

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Plaintiff also provides additional averments from Zehender,

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which also fail to demonstrate irreparable injury. For example, some of

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his averments demonstrate that damages would provide adequate relief:

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“If [Defendant] is allowed to alter the discount structure, [Plaintiff]

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will be forced to buy equipment from [Defendant] at markedly greater

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prices, such that [Plaintiff] will be much less competitive price-wise.”

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(Zehender Decl. ¶ 16); “The prices at which [Plaintiff] purchases

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equipment from [Defendant] will rise by an average of approximately

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14–15% if [Defendant] is unilaterally allowed to abandon the Exhibit B

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discount schedule bargained for by [Plaintiff].” (id.); “[Plaintiff]

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will have a dramatically higher carrying cost on any inventory that

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[Plaintiff] purchases from [Defendant].” (Zehender Supplemental Decl.

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¶ 23, ECF No. 23-1); “[Plaintiff] will be forced to liquidate millions

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of dollars of excess inventory to avoid floor-plan interest charges.”

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(Id. ¶ 14.)

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Zehender also makes other statements that lack evidentiary

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support: “[Plaintiff]’s

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purchases from [Plaintiff] . . . will instead purchase Hyundai equipment

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directly from Hyundai.” (Zehender Decl. ¶ 16); “[Defendant]’s conduct

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would disrupt the retail distribution of Hyundai construction equipment

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within

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[Plaintiff]’s sub-dealers, irreparably harming [Plaintiff]’s image with

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end users across [Plaintiff]’s geographic territory.” (id. ¶ 21); “[T]he

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contractual discount structure [changes] would put [Plaintiff] virtually

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out of the market and force [Plaintiff] to completely change [its]

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business model. . . . [Plaintiff]’s ability to continue as a viable

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entity is far from certain. In short, the amount of damage this change

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will

the

have

entire

on

sub-dealers

geographic

[Plaintiff]

is

[who cease]

area

served

virtually
10

mak[ing] wholesale

by

impossible

[Plaintiff]

to

and

calculate.”

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(Zehender Supplemental Decl. ¶ 2); “The legal exposure alone (as a

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result of our potential violation of the sub-dealer’s CEDA rights, and

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the ability of those dealers to pursue damages AND attorneys’ fees

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against us) is daunting.” (Id. ¶ 24.)

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These averments are

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inadmissible conclusions of [Plaintiff’s] own
executive[] that if [a preliminary injunction does
not issue] Plaintiff[’s] goodwill and [image] will
be damaged due to an anticipated decrease in sales.
Such conclusory statements cannot support a finding
of irreparable injury for the issuance of a
preliminary injunction. Am. Passage Media Corp.[ v.
Cass Commc’ns, Inc.], 750 F.2d [1470,] 1473 [(9th
Cir. 1985)] (declarations of plaintiff’s executives
detailing the disruptive effect of defendant’s
exclusive contracts on plaintiff’s business could
not
support
the
issuance of
a preliminary
injunction because they were “conclusory and
without sufficient support in facts[]”); Goldie’s
Bookstore, Inc., [739 F.2d at 472] (reversing
issuance of preliminary injunction where district
court had determined that plaintiff “would lose
goodwill and ‘untold’ customers” because the
finding was not based on any factual allegations
and was speculative).

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Dotster, Inc., 296 F. Supp. 2d at 1164 n.2 (first citation omitted).
17
For the stated reasons, Plaintiff has not demonstrated that it
18
will suffer irreparable harm absent the issuance of a preliminary
19
injunction.
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IV. CONCLUSION
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Therefore, Plaintiff’s motion for a preliminary injunction is
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DENIED.
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Dated:

August 8, 2013

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GARLAND E. BURRELL, JR.
Senior United States District Judge

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