Court orders arbitration in Mercury/Yamaha dispute

MILWAUKEE – U.S. District Court Judge William Griesbach ruled Friday that a pricing dispute between Brunswick Corp. subsidiary Mercury Marine and Yamaha Motor Corp. Ltd. must be resolved through an arbitration process, the companies each confirmed this morning.

The court also ordered Yamaha to continue supplying Mercury with the 75-115 HP powerheads at the heart of the dispute while that process proceeds.

The judge’s action came in the wake of Mercury’s recent anticipatory breach of contract lawsuit filed against Yamaha Motor Co. Ltd. in the U.S. District Court, Eastern Court of Wisconsin, attempting to stop Yamaha from implementing a 91.6-percent price increase on the 75-115 HP powerheads it currently buys from the Japanese engine manufacturer.

Yamaha has said it will cease delivery of those models to Mercury Marine as of Nov. 1, if Mercury does not agree to the price increase.

Mercury wrote in its lawsuit that Yamaha’s actions violated a basic sales agreement the companies entered into on May 29, 1998 when, “Yamaha agreed to provide Brunswick with a long-term supply of certain models of marine-engine powerheads and replacement parts at specified prices.”

Yamaha satisfied with ruling
But in a telephone interview with Boating Industry this morning, Phil Dyskow, president of the Marine Group of Yamaha Motor Corp., U.S.A., said the court’s ruling gave his company what it had been seeking from the outset.

“Essentially there are four key points to the ruling,” Dyskow said. ”First of all, the court determined that the issue must be resolved by arbitration, which is what we were contending all along. The contract between Brunswick and Yamaha called for arbitration. Ultimately the issue has to be resolved by arbitration, not by the courts.

“But the judge did order that Yamaha must temporarily continue to produce the powerheads. We will be invoicing, and the court agreed, that we can invoice them at the higher price – which is 91.6-percent higher than the previous price, and Brunswick must post an $8 million bond per month.

“It’s also interesting that Brunswick sealed, or filed the motion to have the majority of its claims under seal, and they’ve also drafted a protective order, so that no one in the industry or even the International Trade Commission can look at those sealed filings. We can only speculate what’s in them, but apparently they’re telling one story in this court and, once again, a completely different story before the ITC, in Washington.”

Mercury Marine helped begin an investigation of Japanese engine manufacturers by the International Trade Commission in January, when it alleged they had violated U.S. anti-dumping laws.

Mercury Marine has said that shortly after the Department of Commerce released the preliminary finding of that investigation in early August – which found that Japanese outboard engine manufacturers had engaged in dumping of outboard engines and powerheads – Yamaha said it would go ahead with the price increase.

Mercury to wait and see

In its response to the Friday ruling, Mercury Marine issued the following statement.

“U.S. District Court Judge William Griesbach has issued a temporary restraining order requiring Yamaha to supply Mercury Marine with four stroke power heads of 75, 90 and 115 horsepower in accordance with the terms, pricing and conditions of the existing supply agreement. The court further ordered Yamaha, if it so chooses, to promptly seek arbitration in Chicago pursuant to the mechanism described in the supply agreement to resolve any disputes between the parties.

“At this point, we will await the next step by Yamaha — whether they seek additional court action or arbitration.”

Yamaha says it intends to seek both.

“We have wanted to arbitrate ever since we notified them of the price increase, because that’s what the contract says,” Dyskow said this morning. “We’ll comply with the order, and arbitration in this matter will be initiated in the very near future. I can’t say if Yamaha or Brunswick will file for arbitration first, but we’ll comply with the order one way or the other. Arbitration may take some time.”

Russell Jura, general counsel for Yamaha Motor Corp., U.S.A. said in a phone interview this morning that Yamaha has begun preparing for arbitration and may also return to the court for “some discovery and for some additional potential rulings.”

Jura said that the arbitration process, as specified in the contract between Yamaha and Brunswick, is an International Chamber of Commerce arbitration.

How arbitration works

In this case, the first step in the arbitration process will involve either Brunswick or Yamaha filing for arbitration, according to Jura. Once that is done, a panel of three arbitrators will help resolve the dispute. Brunswick and Yamaha would appoint their own arbitrators, and those two would choose the third. If they could not reach an agreement on the third arbitrator, that person would be appointed by the ICC, which is located in Paris.

The three arbitrators and the attorneys for both sides then get together to create a “Terms of Reference” which defines what issues are to be determined by the arbitration and the timeline for the process. Then evidence is presented and the arbitrators reach and issue their decision, according to Jura.

Before the decision is issued to the parties, it is reviewed by the ICC to make sure it complies with all the specifications in the ‘Terms of Reference.’ The ICC tries to make sure the arbitration panel has answered all of the questions it was supposed to, and none that were not in the scope of the “Terms of Reference.”

Jura says that is done to prevent the reversal, in court, of the arbitration decision and he believes that if this arbitration goes forward, as now seems likely, the dispute will be settled, one way or another.

“Once the arbitration panel decides, we’ll call it the end of the dispute, because there’s a lawsuit and an arbitration,” Jura said. “What the court has basically indicated in the order [Friday] is that the merits of the lawsuit are to be determined in arbitration, and once the arbitration panel is formed my suspicion is that [the judge] would then dismiss this case, if he does not dismiss it before then.

“Sometimes the court will stay the action, pending arbitration, on the basis that once the arbitration panel issues an award you already have a court case in place – so that if one party refuses to pay the award, you simply rev up the court case that has been stayed and get a court order to pay the award.”

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