SAN FRANCISCO—An appeals court has sent Toyo Tire Holdings of Americas Inc.'s lawsuit against its partners in GTY Tire Co. back to district court.
The Ninth Circuit U.S. Court of Appeals ruled that the U.S. District Court for the Central District of California erred in denying Toyo's suit to enjoin Continental Tire the Americas L.L.C. and Yokohama Tire Corp. from terminating Toyo's status as a joint venture partner in GTY and ending the supply of tires to Toyo from GTY.
The appeals court on June 17 ruled the district court based its Jan. 25 decision on the application of an incorrect legal standard, which resulted in an “abuse of discretion.” It remanded the case for the district court “to properly weigh the appropriate factors.”
The appeals court also ruled that it continues to have “subject matter jurisdiction” over the case despite the fact that the International Court of Arbitration in Geneva, Switzerland, has convened a panel to hear the case. The joint venture agreement among the three companies specified that they would take any disputes to the arbitration court.
The court ruled it continues to have jurisdiction because the arbitrators have yet to rule on Toyo's request of injunctive relief and that Toyo “at this time still has need for interim relief.”
The case centers on Conti's and Yokohama's assertion that Toyo Tire Holdings' parent company, Toyo Tire & Rubber Co. Ltd., is involved in a technology exchange with Bridgestone Corp., a major competitor. They consider that grounds for terminating Toyo's participation in the GTY venture.
Toyo Tire and Bridgestone disclosed in 2008 they were exploring a technology and production cooperation agreement. Toyo Tire Holdings argued in court briefs this involves the firms' Japanese parent companies and is focused on consumer tires, not commercial tires.
Conti, Toyo and Yokohama established GTY Tire at Conti's Mount Vernon, Ill., plant in November 1988 and have cooperated in the venture since. Conti is majority owner of GTY, with 51 percent. Yokohama owns a third and Toyo owns 16 percent, according to company records.
At stake is Toyo's business relationships with its North American commercial customers. The company anticipated sourcing up to 290,000 tires from GTY this year—a total that represents more than 60 percent of the firm's annual truck tire sales in North America, according to testimony in Toyo's lawsuit vs. Continental and Yokohama.
Toyo filed suit Jan. 11 in Superior Court of California, County of Orange, to force GTY to reinstate Toyo's supply of tires, to enjoin Continental and Yokohama from terminating Toyo's status as a joint venture partner in GTY and from interfering with Toyo's relationships with its customers and potential customers. Toyo's supply of tires from GTY ended in January.
The case moved to district court at Conti's and Yokohama's insistence, and then was moved on appeal to the U.S. Court of Appeals in San Francisco.
Continental and Yokohama declined to comment, saying they don't comment on ongoing litigation.
Both of those tire makers claim in their court filings that the GTY joint venture contract provides for two partners to dissolve the third partner's interest “in the event that the other partner entered into a 'technology exchange or collaboration agreement regarding tire technology with a major competitor.' ”
For its part, Toyo denies its 2008 agreement to pursue closer relations with Bridgestone “amounts to a 'technology exchange or collaboration agreement' within the plain language of the amendment” to the original GTY joint venture pact.
Among its assertions, Toyo claims the GTY joint venture agreement provides for an “orderly two-year transitional supply period, such that a partner which is departing from the partnership would have the 'right and obligation' to purchase its allocation of truck and bus radial tires for the remainder of the current fiscal and for two fiscal years thereafter.”
Toyo claims Conti and Yokohama declared to Toyo in a Dec. 22 letter they intended to dissolve the GTY partnership Dec. 31 and confiscate Toyo's partnership interest, to acquire the rights to Toyo's allotment of tires from GTY and take measures to ensure Toyo could not compete in North America with locally sourced truck tires.
Toyo also claims Conti and Yokohama have approached Toyo's dealers to solicit business in light of Toyo's shortage of tires. In its suit, Toyo accuses Conti and Yokohama of engaging “in a deceptive, unfair and malicious pattern of business practices, which includes disparaging Toyo at a critical time in the market cycle that is part of a wrongful scheme designed to destroy Toyo's ability to sell tires in the North America marketplace.”
Based on the numbers presented in the suit and the accepted size of the U.S. truck tire replacement market, Toyo's market share would be roughly 3 percent to 3.5 percent. Besides GTY Tire, Toyo has truck tire capacity at its own plants in Kuwana and Sendai, Japan.