## Facts

- Teradyne and Mostek had a commercial relationship governed by a Quantity Purchase Agreement (QPA) providing discounts conditioned on purchase quantities and imposing cancellation charges if orders were cancelled.
- After the 1984 QPA expired, the parties disputed cancellation charges; Teradyne agreed to waive those charges if Mostek placed a new order and signed a 1985 QPA.
- Mostek agreed but later cancelled the new order and refused to pay the resulting cancellation fees.
- Teradyne initiated arbitration under the contract, seeking about $3.5 million for cancellation charges, allegedly unearned discounts, unpaid invoices, and related damages.
- Soon after the arbitration demand, Mostek announced it would cease operations and sell all assets; roughly $71 million in sale proceeds were deposited in a bank account and used to pay creditors generally.
- Teradyne filed a federal action seeking provisional relief to prevent dissipation of assets pending arbitration.
- The district court entered an order enjoining Mostek from disposing of or encumbering $4 million and requiring that amount be set aside in an interest-bearing account; Teradyne posted a $25,000 bond.

## Issues

1. Whether an order requiring a party to segregate assets pending arbitration is an appealable preliminary injunction under 28 U.S.C. § 1292(a)(1) or a nonappealable attachment-type order.
2. Whether the Federal Arbitration Act precludes a federal court from granting provisional injunctive relief when the merits are committed to arbitration.
3. Whether the district court abused its discretion in ordering Mostek to set aside $4 million pending arbitration.

## Decision

- The First Circuit held the order was a preliminary injunction and therefore appealable under 28 U.S.C. § 1292(a)(1).
- The court held the Federal Arbitration Act does not bar provisional injunctive relief in aid of arbitration when necessary to preserve the status quo and the effectiveness of the arbitral remedy.
- Applying the standard preliminary-injunction factors, the court affirmed, concluding the district court did not abuse its discretion in requiring a $4 million set-aside.

## Legal Principles

- A coercive order restraining disposition of property and requiring segregation of assets pending resolution of a dispute may be treated as an injunction appealable under 28 U.S.C. § 1292(a)(1).
- The Federal Arbitration Act does not strip federal courts of traditional equitable authority to issue interim relief that supports, rather than displaces, arbitration.
- Courts may issue provisional injunctions in arbitrable disputes to prevent actions that would make arbitration awards ineffective, including dissipation of assets needed to satisfy a potential award.
- In determining whether to grant interim relief pending arbitration, courts apply the ordinary preliminary-injunction framework (likelihood of success, irreparable harm, balance of hardships, and public interest).
- An asset-preservation injunction is more likely to be sustained where the amount is reasonably tied to the claimed exposure and the court requires a bond to address potential harm if relief proves unwarranted.

## Conclusion

The First Circuit affirmed an order requiring Mostek to segregate $4 million pending arbitration, holding that such interim injunctive relief is appealable as an injunction and is permitted under the Federal Arbitration Act when necessary to preserve the meaningful availability of arbitral relief.


Teradyne, Inc. v. Mostek Corp., 797 F.2d 43 (1st Cir. 1986)