## Facts

- Performance Unlimited, Inc. licensed and sublicensed rights to children’s Bible-story content derived from the “Dovetales” series.
- After an investor separation, James R. Leininger owned the copyrights and trademarks in Dovetales and licensed publishing rights to Performance.
- Performance sublicensed to Questar Publishers, Inc. the right to publish *The Beginner’s Bible* under a June 22, 1989 licensing agreement.
- The agreement included a mandatory arbitration clause stating arbitration would be the “sole and exclusive remedy” for disputes arising out of or involving the agreement.
- *The Beginner’s Bible* became Performance’s most significant royalty-producing deal, and Performance asserted it would likely fail without the royalty stream.
- In July 1994, Questar stopped paying royalties directly to Performance, placed the disputed royalties into escrow, alleged Performance breached the agreement, and initiated arbitration.
- Performance filed a federal diversity action seeking breach-of-contract and declaratory relief and moved for a preliminary injunction requiring Questar to continue royalty payments during arbitration.

## Issues

1. Whether FAA § 3 and a contract clause making arbitration the “sole and exclusive remedy” preclude a district court from issuing preliminary injunctive relief pending arbitration.
2. Whether Performance satisfied the factors for a preliminary injunction, including irreparable harm, balance of harms, public interest, and likelihood of success.

## Decision

- The Sixth Circuit reversed the denial of a preliminary injunction and remanded.
- The court held district courts have authority to issue preliminary injunctions in aid of arbitration to preserve the status quo, and neither FAA § 3 nor the “sole and exclusive remedy” arbitration language eliminates that authority.
- The court held the district court erred in its preliminary-injunction analysis, particularly regarding irreparable harm, preservation of the status quo, and reliance on unclean hands.
- The court concluded the equitable factors strongly favored Performance because interruption of the royalty stream threatened loss of business viability and goodwill, while temporary payments posed comparatively limited risk to Questar.

## Legal Principles

- FAA § 3’s requirement to stay trial pending arbitration does not bar interim equitable relief; it prevents merits adjudication while allowing measures that keep arbitration effective.
- Courts may issue preliminary injunctions in arbitrable disputes to preserve the last peaceable, noncontested status quo pending arbitration.
- Threatened collapse of an ongoing business and associated loss of goodwill can constitute irreparable harm not adequately remedied by later money damages.
- The preliminary injunction factors are balanced; a strong showing on irreparable harm, balance of harms, and public interest can reduce the required showing on likelihood of success.
- Unclean hands requires sufficiently egregious, litigation-related misconduct; allegations of breach alone, without a showing of unconscionable conduct tied to the request for relief, do not automatically bar equitable relief.

## Conclusion

The Sixth Circuit held that preliminary injunctions may issue to preserve the status quo pending arbitration despite FAA § 3 and an exclusive-arbitration clause, and it found the equities favored ordering continued royalty payments to prevent irreparable harm to Performance while arbitration proceeded.


Performance Unlimited, Inc. v. Questar Publishers, Inc., 52 F.3d 1373 (6th Cir. 1995)