The opinion of the court was delivered by: Ralph R. Beistline United States District Judge
ORDER GRANTING TEOHC'S MOTION FOR A PRELIMINARY INJUNCTION
Before the Court is Defendant The Employee Ownership Holding Company ("TEOHC") with a Motion for a Temporary Restraining Order and Preliminary Injunction at Docket 37. The Court has already granted a temporary restraining order pending the issuance of its decision on the request for a preliminary injunction.*fn1 TEOHC seeks to enjoin Defendant Bruce Couturier and TEOHC from participating in any arbitration relating to the enforcement of an indemnification agreement which Couturier signed while he was a corporate director of TEOHC. Plaintiffs Darleen Stanton and Kelly Morrell join the Motion at Docket 42.
Bruce Couturier opposes at Docket 48. He argues that any injunction prohibiting arbitration would violate the Anti-Injunction Act, 28 U.S.C. § 2283. He also argues that TEOHC and Plaintiffs have established neither a likelihood of success on the merits nor irreparable harm, and that the balance of hardships and the public interest weigh against issuance of the injunction.
This case arises out of the same set of facts as the Johnson v. Couturier litigation, case no. 2:05-cv-02046. Clair Couturier, Bruce Couturier's brother, is the principal defendant in that litigation. In the Johnson case, Clair Couturier and other fiduciaries of the TEOHC Employee Stock Ownership Plan ("ESOP") are accused of breaching their fiduciary duties to TEOHC and the ESOP between 2004 and 2007 by leveraging the TEOHC assets to provide Couturier with a retirement package approximating between $35 to $50 million in value. The assets of TEOHC at the time the compensation packages were approved consisted of shares in what was once known as Noll Manufacturing Company. The plaintiffs in the Johnson case have estimated Couturier's executive compensation to be approximately 70% of the equity of TEOHC.
This Court held in Johnson that "[t]he apparent level of Mr. Couturier's compensation [...] when compared with the overall value of Noll Manufacturing Company, would, if proven, be strong evidence by itself of either willful misconduct or at least lack of prudence by the individual defendants in their capacities as plan fiduciaries."*fn2 Therefore, the Court held that the Johnson plaintiffs had shown a likelihood of success on the merits of their case, and further held that the indemnification agreements between the defendants and TEOHC would likely violate Section 410 of ERISA, which invalidates instruments and agreements that exculpate plan fiduciaries from liability for their misconduct.*fn3 On the basis of these findings, the Court preliminarily enjoined the Johnson defendants from seeking to enforce any arbitration awards related to the indemnification agreements. The Ninth Circuit upheld the Court's decision in all aspects.*fn4
For procedural reasons, Bruce Couturier was not made a party to the Johnson litigation. Like several of the defendants in Johnson, Bruce Couturier served as a member of the Board of Directors of TEOHC. He was appointed in August 2005, and is alleged to have been an ESOP fiduciary with respect to appointing and removing ESOP Trustees (including his brother) and monitoring their activities.*fn5 He is alleged to have violated his ESOP fiduciary duties in August 2005 by executing the Indemnification Agreements and Mutual General Release in favor of Clair Couturier, David Johanson, and Robert Eddy, and by failing to object to the closing of his brother's buyout transaction.*fn6
While Bruce Couturier was on the Board of Directors, he and TEOHC also signed an indemnification agreement, similar to those signed by the Johnson defendants. The agreement indemnifies Couturier for any legal liability he incurs for actions taken in his capacity as a director, except those actions which involve "deliberate wrongful acts or gross negligence."*fn7 The indemnification agreement also provides for the advancement of attorneys' fees during the course of any such litigation.*fn8 The arbitration between TEOHC and Bruce Couturier which had been scheduled for September 28, 2009 stemmed out of a dispute over TEOHC's obligations under this indemnification agreement.
Federal Rule of Civil Procedure 65 authorizes injunctive relief under certain specified conditions. A plaintiff seeking a preliminary injunction must establish "' that he is likely to succeed on the merits,  that he is likely to suffer irreparable harm in the absence of preliminary relief,  that the balance of equities tips in his favor, and  that an injunction is in the public interest.'"*fn9
There is some dispute between the parties as to what burden TEOHC carries in establishing the appropriateness of a preliminary injunction. TEOHC argues that it is "not required to make a showing that advancement and indemnification is barred by ERISA, but rather that under the circumstances present Couturier and TEOHC should be ordered to refrain from participating in an arbitration proceeding that would not bind ESOP participants."*fn10 While it is true that the results of the arbitration proceeding would not bind the ESOP participants, the arbitration would bind TEOHC unless it can be shown that the indemnification agreements are barred by ERISA. The Court has no reason to enjoin the arbitration except to preserve the ERISA rights of the ESOP participants. If TEOHC cannot establish that the indemnification agreements are likely barred by ERISA, then the fact that the arbitration is non-binding on the ESOP participants is irrelevant.
If Couturier were, for example, an independent caterer seeking to arbitrate a catering contract with TEOHC, rather than an ERISA fiduciary seeking indemnification under an allegedly prohibited contract, then the Court would have no jurisdiction to stay the arbitration. This would be true whether or not the ESOP participants were party to the arbitration agreement. While TEOHC need not necessarily show that Plaintiffs are likely to prevail in the litigation as a whole, the Court ...