Hendricks v. Bank of America, 022505 FED9, 03-55754

Docket Nº:03-55754
Party Name:Diane M. Hendricks; Kenneth A. Hendricks, Plaintiffs-Appellees, v. Bank of America, N.A., Defendant, and Mutual Indemnity (Bermuda), Ltd., a Bermuda Corporation, Defendant-Appellant.
Case Date:February 25, 2005
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Diane M. Hendricks; Kenneth A. Hendricks, Plaintiffs-Appellees,


Bank of America, N.A., Defendant,


Mutual Indemnity (Bermuda), Ltd., a Bermuda Corporation, Defendant-Appellant.

No. 03-55754

United States Court of Appeals, Ninth Circuit
February 25, 2005
Argued and Submitted January 14, 2004—San Francisco, California

Appeal from the United States District Court for the Central District of California, D.C. No. CV-02-03150-GHK, George H. King, District Judge, Presiding


Vincent J. Connelly, Mayer, Brown, Rowe & Mawe, Chicago, Illinois, for the defendant-appellant.

Bruce R. Meckler, Meckler Bulger & Tilson, Chicago, Illinois, and Robert G. Campbell, Cox Castle & Nicholson LLP, Los Angeles, California, for the plaintiffs-appellees.

Before: J. Clifford Wallace, John T. Noonan, and M. Margaret McKeown, Circuit Judges.


WALLACE, Senior Circuit Judge:

Mutual Indemnity (Bermuda), Ltd., the defendant in the trial court (Mutual), appeals from a district court order enjoining co-defendant Bank of America, N. A. (Bank) from honoring Mutual's efforts to draw down on a letter of credit (LOC) posted by Diane and Kenneth Hendricks, the trial court plaintiffs (the Hendricks). We have jurisdiction to review the district court's preliminary injunction order pursuant to 28 U.S.C. § 1292(a)(1), and we affirm.


The Hendricks own American Patriot Insurance Agency, Inc. (American Patriot), a company that specializes in providing insurance products to roofing contractors. In early 1997, the Hendricks established a commercial insurance program for workers compensation and other insurance coverages with underwriting assistance from Mutual Risk Management and its subsidiaries: Mutual, Legion Insurance Company, Commonwealth Risk Services, L.P., and Villanova Insurance Company (collectively, the Mutual Entities). Several contracts govern the relationship between American Patriot and the Mutual Entities, but only one is directly relevant here: a "shareholder agreement," which entitles the Hendricks to reap certain profits and income generated by the commercial insurance program and commits the Hendricks to indemnify Mutual for losses on the program. The shareholder agreement also requires the Hendricks to post irrevocable LOCs and maintain the LOCs for the duration of Mutual's outstanding or potential liability for program losses.

In April 2001, the Hendricks filed an action in the Northern District of Illinois "alleging fraud, misrepresentation, conspiracy, breach of contract, RICO violations and negligence arising out of" the Mutual Entities' alleged fraudulent mishandling of their underwriting and claims-handling practices from 1997 to 1999. Am. Patriot Ins. Agency, Inc. v. Mut. Risk Mgmt., Ltd., 248 F.Supp.2d 779, 781 (N.D. Ill. 2003). The Mutual Entities moved to dismiss for lack of venue, citing the shareholder agreement's forum selection clause, which states: "This Agreement . . . shall be exclusively governed by and construed in accordance with the laws of Bermuda and any dispute concerning this Agreement shall be resolved exclusively by the courts of Bermuda." The district court agreed that the forum selection clause precluded the Hendricks' Illinois action and granted the motion to dismiss. Id. at 783-86. On appeal, the Seventh Circuit affirmed. See Am. Patriot Ins. Agency, Inc. v. Mut. Risk Mgmt., Ltd., 364 F.3d 884 (7th Cir. 2004).

One day after filing their Illinois complaint, the Hendricks brought an action in the Central District of California seeking injunctive relief to prevent Mutual from drawing down on an LOC in the possession of the Bank. The California complaint listed both Mutual and the Bank as defendants and requested a preliminary injunction based on California Commercial Code section 5109(b), which provides that "[i]f an applicant claims that . . . honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant, a court of competent jurisdiction may temporarily or permanently enjoin the issuer from honoring a presentation." Cal. Com. Code § 5109(b).

The district court reviewed the Hendricks' pleadings and promptly issued a temporary restraining order against Mutual, directing it to show cause why a preliminary injunction should not be entered. After the Northern District of Illinois filed its decision in the Illinois action, Mutual invoked collateral estoppel and asked the district court to dissolve the temporary restraining order and deny the Hendricks' request for injunctive relief. Following oral argument, the district court determined that the Hendricks "ha[d] stated a claim for interim relief against the Bank of America as the issuer of the LOC . . . pursuant to . . . Section 5109." The district court reasoned that collateral estoppel did not prevent the Hendricks from seeking injunctive relief against the Bank, because the Bank was not a party in the Illinois action against the Mutual Entities. In addition, it concluded that Mutual was "not a necessary, much less an indispensable, party to" that action against the Bank. It therefore "stayed" the Hendricks' claims against Mutual and issued a "preliminary" injunction to remain in effect "until the earlier of the following: (1) [f]inal resolution of the merits of the underlying claims between Plaintiffs and the Mutual Defendants in either the Illinois federal court or Bermuda; or (2) April 14, 2006."


Mutual does not challenge the district court's decision to stay indefinitely the Hendricks' action against it individually. Instead, it seeks to appeal from the portion of the district court's order that grants preliminary injunctive relief against the co-defendant Bank. The Bank has chosen not to participate in Mutual's appeal since it does not assert an independent interest in the LOC. This raises an important threshold question for our consideration: whether Mutual, a party to the Hendricks' action and the LOC beneficiary, has standing to appeal from the district court's preliminary injunction order against the Bank.

We have held that a defendant may assert "standing to contest the grant of the preliminary injunction issued against . . . other defendants" under certain circumstances, "even though those defendants have not appealed." Goldie 's Bookstore, Inc. v. Superior Court, 739 F.2d 466, 468 n.2 (9th Cir. 1984). To meet our standing requirements for appeal, a defendant must demonstrate that he or she was "a party at the time judgment was entered and [was] aggrieved by the decision being appealed." Id. ; see also In re Exxon Valdez, 239 F.3d 985, 987 (9th Cir. 2001) (concluding that a litigant had standing to appeal because it was "a party to this case from the beginning" and "contends that it is aggrieved by the district court's order"). Mutual clearly satisfies these requirements because it was both a party of record when the district court entered its preliminary injunction and the intended beneficiary of the enjoined LOC. See Lueker v. First Nat'l Bank of Boston (Guernsey) Ltd., 82 F.3d 334, 337 (10th Cir. 1996) (observing that an LOC beneficiary had standing to appeal from an injunction entered against a co-defendant bank under similar circumstances); Andy Marine, Inc. v. Zidell, Inc., 812 F.2d 534 (9th Cir. 1987) (exercising jurisdiction over an LOC beneficiary's appeal from a district court order, which enjoined a bank from honoring the beneficiary's draft).

The Hendricks also contend that Mutual lacks standing to appeal because it steadfastly contested personal jurisdiction in the Central District of California, but they cite no authority which supports this argument. Were we to treat personal jurisdiction defenses under Federal Rule of Civil Procedure 12(b)(2) as waivers of appellate standing, we would essentially immunize district courts' personal jurisdiction determinations from appellate scrutiny—an untenable proposition, to be sure.

We recognize, of course, that a nonparty generally cannot simultaneously challenge personal jurisdiction and assert standing to appeal. "The rule that only parties to a lawsuit, or those that properly become parties, may appeal an adverse judgment, is well settled." Marino v. Ortiz, 484 U.S. 301, 304 (1988) (per curiam). For this reason, an interested LOC beneficiary who "deliberately [chooses] to remain a nonparty" lacks standing to appeal from a district court order which permanently enjoined a bank from making payment on the LOC. Citibank Int 7 v. Collier-Traino, Inc., 809 F.2d 1438, 1439-41 (9th Cir. 1987).

However, Mutual was a party to the district court proceedings and was aggrieved by the preliminary injunction. It therefore has standing to appeal the injunction. See Goldie 's Bookstore, Inc., 739 F.2d at 468 n.2. We hold, therefore, that Mutual has standing to appeal from the district court's preliminary injunction.


Mutual raises essentially two procedural challenges to the district court's preliminary injunction: improper venue and lack of personal jurisdiction over a necessary and indispensable party. See Fed. R. Civ. P. 12(b)(3) (improper venue); Fed. R. Civ. P. 19(a)-(b) (necessary and indispensable party).


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