This case involves a dispute between Shandong Linglong Tire Co. Ltd., a Chinese tire manufacturer, its Thai and U.S. subsidiaries (collectively, “Linglong”) and Horizon Tire, Inc., Linglong’s U.S. distributor.
A brief history of the case is as follows. In 2015, Horizon sued Linglong in California federal court, alleging that Linglong had not repaid a $3.6 million loan, failed to fulfill a November 2014 order for tires, and failed to honor Horizon’s exclusive distributorship rights for Linglong’s tires. Linglong then sued Horizon in Ohio federal court, seeking, among other things, a declaration that Horizon did not have an exclusive distributorship arrangement with Linglong. Horizon dismissed its California suit, and filed an answer and counterclaims in Ohio. Linglong amended its complaint, and Horizon then filed an answer and amended counterclaims for declaratory relief, breach of contract, and misappropriation of trade secrets, among other claims. Linglong filed a motion under Rule 12(b)(1) to dismiss or stay Horizon’s amended counterclaims pending arbitration based on an arbitration clause in a Collaboration Agreement between them entered into in 2006, which expired in 2011 (the “Agreement”). The Ohio district court denied the motion, reasoning that Horizon’s claims were not based on the Agreement, that the Agreement had expired, and that Linglong had waived any right to arbitrate. Linglong then appealed to the Sixth Circuit, arguing that the arbitration clause survived the expiration of the Agreement.
The Sixth Circuit, in reviewing the Ohio district court’s refusal to compel arbitration de novo, noted that an arbitration clause survives the expiration of a contract only when the dispute at issue “arises under the contract,” which occurs in two circumstances relevant to the current dispute. First, the Court stated that a dispute arises under the contract when a “majority of the material facts and occurrences” giving rise to the dispute occurred prior to the expiration of the contract at issue. In this case, the Court noted that the vast majority of events at issue occurred after the expiration of the Agreement. Second, a dispute arises under the contract when the contractual right at issue survives the expiration of the contract itself. Although the Sixth Circuit noted that one might interpret Horizon’s claims for permanent right of exclusive distributorship to arise out the Agreement, the Court also noted that Horizon itself had stated that “to the extent that Horizon had a claim based on a continuing obligation created by the Collaboration Agreement, Horizon has unequivocally and irrevocably waived it.” The Sixth Circuit then found that the Agreement’s arbitration clause does not apply to Horizon’s claims and that Horizon is estopped from making any claim based upon the Agreement. Thus, the Court affirmed the Ohio district court’s order denying Linglong’s motion.
Linglong Americas Inc. et al. v. Horizon Tire Inc., No.16-3520 (6th Cir. Dec. 1, 2016).