Paccar Intern., Inc. v. Commercial Bank of Kuwait, S.A.K.

• Decision Date: 17 April 1985
• Docket Number: 84-6293,Nos. 84-6004,s. 84-6004
• Citation: 757 F.2d 1058
• Parties: 41 UCC Rep.Serv. 1383 PACCAR INTERNATIONAL, INC., Plaintiff-Appellee, v. COMMERCIAL BANK OF KUWAIT, S.A.K., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1058

757 F.2d 1058

41 UCC Rep.Serv. 1383

PACCAR INTERNATIONAL, INC., Plaintiff-Appellee, v. COMMERCIAL BANK OF KUWAIT, S.A.K., Defendant-Appellant.

Nos. 84-6004, 84-6293.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 4, 1985.

Decided April 12, 1985.

As amended April 17, 1985.

Lawrence W. Newman, Baker & McKenzie, New York City, for plaintiff-appellee.

C. Thorne Corse, San Francisco, Cal., for defendant-appellant.

Lawrence W. Dam, Lillick McHose & Charles, Stanley F. Farrar, Sullivan & Cromwell, Los Angeles, Cal., for amicus curiae.

On Appeal From the United States District Court for the Central District of California.

Before CHAMBERS, BOOCHEVER and BEEZER, Circuit Judges.

BEEZER, Circuit Judge:

Paccar International, Inc. ("Paccint") brought this action seeking to enjoin the Commercial Bank of Kuwait, S.A.K. ("CBK") from drawing on a letter of credit issued by the Los Angeles branch of Chase Bank International ("Chase"). The district court granted a preliminary injunction against CBK. CBK appeals, asserting that the district court lacked personal jurisdiction over CBK and that the district court erred in granting the preliminary injunction. We conclude that the district court lacked personal jurisdiction over CBK. Accordingly, we vacate the order granting the preliminary injunction.

I BACKGROUND

Paccint is a Delaware corporation with its principal place of business in Bellevue, Washington. Paccint is in the business of distributing vehicles and equipment outside the United States. In 1982, the Kuwait Oil Company ("KOC") solicited bids for a contract to supply trucks and trailers. KOC sought bids only from corporations with a majority of Kuwaiti shareholders. Desiring to bid for the KOC contract, Paccint entered into a contract with IHI Kuwait Co. ("IHI"), a Kuwaiti corporation. Pursuant to the contract, IHI submitted a bid, which KOC accepted. Paccint agreed to supply the equipment to IHI for resale to KOC at a purchase price of $33,588,016. IHI received a commission of $3 million.

This case involves the financing arrangements made by IHI and Paccint. KOC required bank guarantees to secure IHI's performance under the contract. IHI arranged for its bank, CBK, to issue performance guarantees in favor of KOC in the total amount of $3,358,801 ("the KOC Guarantee"). CBK also issued a performance guarantee in favor of IHI to cover defaults by Paccint ("the IHI Guarantee"). Paccint arranged for Chase to issue a standby letter of credit in favor of CBK. The letter of credit provided that CBK could draw funds on nine days notice as reimbursement for any sums paid pursuant to the IHI Guarantee. In a side agreement, Paccint and IHI allegedly agreed that IHI would only demand funds under the IHI Guarantee when it was obligated to pay an equal or greater sum to KOC on account of Paccint's default.

In February 1984, IHI submitted a claim to Paccint in the amount of $1,492,566.60 for warranty work which IHI alleged that it had performed on the equipment delivered to KOC. After an investigation, Paccint concluded that IHI's claim was significantly overstated. Accordingly, Paccint rejected IHI's claim. ¹ On May 1, 1984, CBK gave notice to Chase of its intention to draw $1,492,566.60 under the letter of credit. After Chase notified Paccint of CBK's demand, Paccint filed suit to compel CBK to withdraw its demand for payment.

Paccint claims that CBK's attempt to draw under the letter of credit was fraudulent because CBK knew that IHI's claims were false. Paccint also contends that CBK knew that IHI was insolvent and intended to use the letter of credit as a means of obtaining funds to satisfy IHI's obligations to CBK. On May 7, 1984, the district court issued a temporary restraining order. On May 25, 1984, the district court granted a preliminary injunction against CBK. 587 F.Supp. 783 (C.D.Cal.1984). CBK filed a timely notice of appeal from the granting of the preliminary injunction.

II STATUTORY JURISDICTIONAL REQUIREMENTS

Our analysis of the jurisdictional question in this case requires us to consider the California statutes relating to personal jurisdiction. ² The California long-arm statute provides that California courts "may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States." Cal.Civ.Proc.Code Sec. 410.10. Section 410.10 has been interpreted as giving California courts jurisdiction coextensive with federal due process. E.g., Hunt v. Erie Insurance Group, 728 F.2d 1244, 1246 (9th Cir.1984); Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1286 (9th Cir.1977). As a result, the distinction between federal due process and California due process does not affect the outcome of this appeal. See 4 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure Sec. 1075, at 150 (Supp.1984).

III CBK'S CONTACTS WITH CALIFORNIA

Paccint claims that the district court has "specific jurisdiction" over CBK. ³ In Data Disc, we held that a plaintiff attempting to establish specific jurisdiction must show that three requirements are satisfied:

(1) The nonresident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws. (2) The claim must be one which arises out of or results from the defendant's forum-related activities. (3) Exercise of jurisdiction must be reasonable.

557 F.2d at 1287; see Cubbage v. Merchent, 744 F.2d 665, 668 (9th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 1359, 84 L.Ed.2d 380 (1984). The first two requirements under Data Disc are closely related because they focus on the relationship of the defendant and the claim to the forum state. Once the defendant's contacts with the forum state are found to satisfy the first two requirements, those contacts must be evaluated under the third requirement. ⁴

For purposes of specific jurisdiction, it is undisputed that CBK has only two contacts with California: (1) the existence of the letter of credit, and (2) CBK's attempt to draw under the letter of credit. This suit "arises out of or results from" those two contacts. Accordingly, either contact would satisfy the second requirement. The critical inquiry is whether either of the contacts satisfies the first requirement.

A. The Existence of the Letter of Credit

The district court found that CBK's status as beneficiary of the letter of credit was sufficient to uphold jurisdiction, relying on Wyle v. Bank Melli, 577 F.Supp. 1148 (N.D.Cal.1983). The facts in Wyle are virtually identical to those in this case. The Bank of California issued a standby letter of credit with Bank Melli, an Iranian bank, as beneficiary. The letter of credit secured certain obligations of Pacific Far East Lines ("PFEL"), a California corporation, to PSO, an Iranian corporation. PSO demanded payment from Bank Melli, which drew on the letter of credit. A representative of PFEL sought an injunction, which the district court granted. In upholding personal jurisdiction, the district court offered the following analysis:

The first and second Data Disc conditions are met here by the letter of credit transaction itself. Both PSO and Bank Melli relied on the credit of a California bank in going forward with the cargo shipping and related indemnity agreements. Implicitly, they relied on their ability to enforce the obligation of Bank of California in a California court, as the following hypothetical illustrates: Suppose PSO had made legitimate claims and Bank Melli had paid under its guarantee and sought to collect under the letter of credit, but PFEL had induced Bank of California not to pay by false representations that PSO's claims were fraudulent. Bank of California and PFEL would have been subject to suit here. Indeed, defendants argue for another purpose--limiting the relief available--that California law governs this letter of credit transaction.

Id. at 1160. Paccint argues that Wyle is persuasive authority in favor of upholding jurisdiction. ⁵

We decline to follow Wyle for three reasons. First, Wyle is contrary to the rule that the mere existence of a contract is insufficient to confer personal jurisdiction. We have refused, for example, to uphold personal jurisdiction over a foreign corporation, which contracted with a California corporation, when the record revealed that the defendant "has not performed any act relating to the contract at issue by which it purposefully availed itself of the privilege of conducting business in California." Thos. P. Gonzalez Corp. v. Consejo Nacional de Produccion de Costa Rica, 614 F.2d 1247, 1254 (9th Cir.1980). If we accepted the analysis in Wyle, CBK could be forced to defend a suit in California even though it had never committed an affirmative act in California. Such a result would deprive CBK of due process. See Thos. P. Gonzalez, 614 F.2d at 1254.

Second, the analysis in Wyle assumes that the parties in a letter of credit transaction rely on their ability to enforce the letter of credit in a particular forum. In fact, the parties may anticipate enforcing the letter of credit in any one of several forums. In this case, for example, CBK could have filed suit against Paccint and Chase in Kuwait, California, Delaware, Washington, or New York. Accordingly, the factual premise of Wyle is suspect. ⁶

Third, the analysis in Wyle does not apply to the facts of this case. Paccint has not alleged that CBK participated in the selection of Chase or the decision to employ a California bank. In an affidavit, Richard Carey, who is the general manager of CBK, stated that CBK did not participate in the selection of Chase. Accordingly, the record does not support the conclusion that CBK purposefully availed itself of the privilege of conducting business in California by becoming the beneficiary of the...