Enterprise Intern., Inc. v. Corporacion Estatal Petrolera Ecuatoriana

• Decision Date: 10 June 1985
• Docket Number: No. 84-2424,84-2424
• Parties: 41 UCC Rep.Serv. 1388 ENTERPRISE INTERNATIONAL, INC., Plaintiff-Appellee, v. CORPORACION ESTATAL PETROLERA ECUATORIANA, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 464

762 F.2d 464

41 UCC Rep.Serv. 1388

ENTERPRISE INTERNATIONAL, INC., Plaintiff-Appellee, v. CORPORACION ESTATAL PETROLERA ECUATORIANA, et al.,

Defendants-Appellants.

No. 84-2424.

United States Court of Appeals, Fifth Circuit.

June 10, 1985.

Rehearing Denied July 8, 1985.

Porter & Clements, Joanne M. Vorpahl, Jesse R. Pierce, Houston, Tex., for Corporacion.

Fulbright & Jaworski, J. Todd Shields, Ronald D. Secrest, Houston, Tex., for Bank of America, N.T. & S.A.

Hutcheson & Grundy, Darrel E. Reed, Jr., Kenneth R. Breitbeil, Houston, Tex., for Enterprise.

Vinson & Elkins, D. Bobbit Noel, Jr., Houston, Tex., for First City Nat. Bank of Houston, N.A.

Appeals from the United States District Court for the Southern District of Texas.

Before GOLDBERG, RUBIN, and HILL, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

Without deciding whether it had personal jurisdiction over Ecuador's official state-operated oil company, which interposed a challenge to the court's jurisdiction, the district court issued a preliminary injunction prohibiting the Ecuadorian oil company from demanding payment on a letter of guarantee issued by the Ecuadorian branch office of a bank whose main office is in the United States, prohibiting the Ecuadorian branch office from demanding payment on a letter of credit issued by a different bank located in the United States, and prohibiting the United States bank from honoring any such demand on the letter of credit. Because the court acted judicially without making any finding on its challenged jurisdiction over the Ecuadorian oil company, and because, as to the parties who did not challenge the court's jurisdiction, the irreparable injury requisite to the issuance of a preliminary injunction was not shown, we vacate the injunction and remand for further proceedings.

I.

Corporacion Estatal Petrolera Ecuatoriana ("C.E.P.E."), the official state-operated oil company of the Republic of Ecuador, agreed to buy liquid petroleum gas (LPG) from Belen Enterprise International, Inc. ("Belen-Enterprise"), a Panamanian corporation. Belen-Enterprise obtained a letter of guarantee from Bank of America in Quito, Ecuador, and one of its parent corporations, Enterprise International, Inc. ("Enterprise International"), obtained a supporting letter of credit from First City National Bank of Houston, Texas, to guarantee performance of the contract. Belen-Enterprise is ultimately jointly owned by Belen Co., Ltd. ("Belen"), another Panamanian corporation, and Enterprise International, a Texas corporation. Enterprise International filed this suit to enjoin Bank of America, First City National Bank, and C.E.P.E. from honoring, drawing upon, or drawing down the letter of credit and the letter of guarantee issued to guarantee Belen-Enterprise's performance of the LPG contract.

The contract requires the following. The seller is to deliver stated quantities of LPG monthly from April, 1983, through March, 1984, and to establish an unconditional irrevocable guarantee for its performance in the amount of $1,700,000 with Bank of America in Quito, Ecuador, in favor of C.E.P.E. ¹ The guarantee is to remain in force through "60 days after [the] contract's expiration date or the signing of an Act of Settlement." ² If the seller fails to fulfill the contract, the buyer must give the seller fifteen days notice to justify or correct the matter, and if the problem is not corrected in this time, the buyer "may make the guarantee effective" by advising the bank of the matter. ³

Pursuant to a provision for the settlement of contractual disputes, set forth in full in the footnote, ⁴ all claims of the buyer must be submitted to a designated Ecuadorian court, and the laws of Ecuador are to be applied to the "legal effects" of the contract. The parties are to sign an act of settlement within thirty days of the termination of the contract, and the buyer must return the "performance bond" to the seller seven working days after signing the act of settlement. ⁵

In accordance with the contract, Belen-Enterprise secured a letter of guarantee ("the guarantee") for $1,750,000 from the Bank of America in Quito for the benefit of C.E.P.E. To support the guarantee of Bank of America, Enterprise International obtained a standby letter of credit ("the standby letter") for the same amount in the form of a telex from First City National in Houston. The telex, which lists Bank of America, Quito, as the beneficiary of the standby letter, and Enterprise International as the applicant, by its own terms, "is the operative document." It instructs Bank of America to issue its "irrevocable and unconditional bank guarantee on behalf of [Belen-Enterprise] in favor of [C.E.P.E.] expiring June 2, 1984, in Ecuador supporting LPG" and authorizes Bank of America to issue its guarantee in its "usual text in Spanish version and according to your local regulations." The telex states that, should Bank of America be required to honor its guarantee, after notice to First City National, Bank of America is to debit First City National's account at Bank of America in San Francisco. According to testimony given at the preliminary injunction hearing, First City National would then debit the account of Enterprise International in Houston.

Bank of America in Quito issued its letter of guarantee in accordance with First City National's instructions. The letter informs C.E.P.E. that First City National establishes itself as the guarantor of Belen-Enterprise for "up to the sum of US $1,750,000.00" to guarantee the performance of the LPG contract and that First City National will pay the amount of the guarantee upon C.E.P.E.'s presentation to Bank of America in Quito of the signed contract between C.E.P.E. and Belen-Enterprise, an official letter signed by the General Manager of C.E.P.E. stating that Belen-Enterprise has failed to comply with its contractual obligations, and the original guarantee. The guarantee also states that First City National "indicate[s] as [its] domicile (business address) for all purposes for this guarantee, and, especially for its payment, (the offices of) Bank of America" in Quito, Ecuador, and that it authorizes Bank of America "to effect the payment of this guarantee on our behalf and under our responsibility, when it is requested, in accordance with the terms of this document (guarantee)."

Belen-Enterprise delivered LPG from April, 1983, through March, 1984, without any notice from C.E.P.E. that it was dissatisfied with Belen-Enterprise's performance. During April, the President of Belen-Enterprise thrice submitted to C.E.P.E. a documentation of the fees accumulated during the course of the LPG contract for which C.E.P.E. was allegedly responsible, so that an act of settlement might be negotiated and signed within thirty days of termination of the contract, as required by the contract. ⁶ Although the parties began to negotiate in June, 1984, they have not yet signed an act of settlement.

On May 22, C.E.P.E. requested that the date of the guarantee be extended for two more months because the act of settlement had not been signed, and it claimed that, according to the LPG contract, the guarantee was to continue until that was done. Belen-Enterprise refused to extend the guarantee, stating that it had received a telex from C.E.P.E. to the effect that the LPG contract terminated on March 31, 1984, ⁷ and there had been more than sufficient time for the two companies to negotiate and sign an act of settlement. Bank of America then informed First City National that C.E.P.E. had threatened to draw down the guarantee if it was not extended.

Fearing that the guarantee and the standby letter would be drawn upon, Enterprise International filed this suit in Texas state court seeking a temporary restraining order prohibiting C.E.P.E. from drawing on, and prohibiting Bank of America and First City National from honoring, the guarantee or the standby letter should C.E.P.E. make a demand. The state court granted the temporary restraining order on June 1, 1984, and Enterprise International in accordance with the state court's order, extended the standby letter until June 11.

C.E.P.E. removed the case to the federal district court, and, on June 11, the district court granted its own temporary restraining order. After C.E.P.E. made requests for further extensions and threats to draw upon the guarantee, Enterprise International agreed to extend the guarantee to June 21, the day on which the district court held the hearing on the motion for a preliminary injunction. The morning of that hearing, Bank of America again notified First City National that C.E.P.E. would demand payment if another extension were not granted.

The district court granted a preliminary injunction prohibiting C.E.P.E. from drawing on the guarantee or the standby letter and prohibiting Bank of America and First City National from honoring any demand by C.E.P.E. The court found that there was a substantial likelihood that Enterprise International would succeed on the merits of its claim that the LPG contract and its obligation to provide the letter of credit had terminated. Although there was evidence that C.E.P.E. had claimed in June, 1984, that Enterprise International owed it approximately $500,000, ⁸ the court found that C.E.P.E. had made no "formal claims" prior to the filing of the original petition, and that Enterprise International's claims against C.E.P.E. were "in excess of $200,000." According to the court's interpretation of the LPG contract, C.E.P.E.'s failure to notify Enterprise International of any breach of the contract contravened the notice-of-breach provision of the contract. ⁹ The court also implicitly held that the LPG contract expired on March 31, 1984, and it resolved a contractual ambiguity in favor of Enterprise International by holding that the obligation to maintain the credit expired sixty days after the termination date of the contract, i.e., March...