Preliminary Relief in Aid of Arbitration

Dispute Resolution Journal, May-Jul 2006

INTERNATIONAL

The 1st Circuit upheld a lower court's denial of a request for preliminary relief in aid of an international arbitration before the International Chamber of Commerce (ICC).

Puerto Rico Hospital Supply entered into an exclusive distributorship agreement with Boston Scientific Corp., a medical products manufacturer. The agreement was for one year, but the parties had extended the term for additional one-year periods. The contract stated that it shall be governed by the laws of Massachusetts and, to the extent applicable," the laws of Puerto Rico and the United States. The agreement stated that all disputes, including those relating to contract construction, should be arbitrated under ICC rules. Eventually Boston Scientific gave notice that it did not intend to renew the contract. Puerto Rico Hospital Supply responded by filing an arbitration complaint and a lawsuit seeking a preliminary injunction pending arbitration. The district court, applying federal standards, denied the motion because there was no showing of irreparable harm. The 1st Circuit upheld the district court after reviewing its decision de novo for an abuse of discretion.

First, the appeals court held that the district court did not err in hearing the case because (1) it has jurisdiction to issue preliminary injunctions to preserve the status quo pending arbitration, and (2) ICC rules allow interim relief to be obtained from an arbitrator or a court. The 1st Circuit then held that the choice-of-law clause was ambiguous because the words "to the extent applicable" did not clearly say which law should apply and when. Acknowledging that ambiguous choice-of-law provisions should be determined by the arbitrator, the court said this should not prevent a court from making a preliminary judgment about the applicable law for purposes of the preliminary injunction motion. It went on to hold that, given the ambiguous nature of the choice-of-law provision, the district court made a permissible and reasonable choice to apply the federal test for preliminary injunction relief. Even if Puerto Rican law should have been applied, that error was harmless because there was no clear indication that the case would come out differently. Finally, the 1st Circuit held that any harm suffered by Puerto Rico Hospital Supply could be compensated by later-issued damages.

Puerto Rico Hospital Supply, Inc. v. Boston Scientific Corp., 426 F.3d 503 (1st Cir. 2005).