Thomas J. Palmer, Inc. v. Turkiye Is Bankasi A.

• Decision Date: 25 April 1980
• Citation: 105 Cal.App.3d 135,164 Cal.Rptr. 181
• Parties: THOMAS J. PALMER, INC., a corporation, Lake Construction Company, Inc., a corporation, Kenneth G. Walker, an Individual, Thomas J. Palmer, an Individual, Plaintiffs and Appellants, v. TURKIYE IS BANKASI A. S., Defendant and Respondent. Civ. 56588.
• Court: California Court of Appeals Court of Appeals

Page 181

164 Cal.Rptr. 181

105 Cal.App.3d 135

THOMAS J. PALMER, INC., a corporation, Lake Construction Company, Inc., a corporation, Kenneth G. Walker, an Individual, Thomas J. Palmer, an Individual, Plaintiffs and Appellants, v. TURKIYE IS BANKASI A. S., Defendant and Respondent.

Civ. 56588.

Court of Appeal, Second District, Division 3, California.

April 25, 1980.

Baum & Cohen, Leonard P. Baum, and Norman A. Mathews, Beverly Hills, for plaintiffs and appellants.

Ball, Hunt, Hart, Brown & Baerwitz, Joseph A. Ball, James Polish, and J. Steven Greenfeld, Beverly Hills, for defendant and respondent.

POTTER, Acting Presiding Justice.

Plaintiffs appeal from an order of the trial court quashing out-of-state service of summons upon defendant Turkiye Is Bankasi, a Turkish national bank (hereinafter referred to as Turkish Bank). The order, which was based on the court's "opinion that the exercise of jurisdiction herein as against the defendant Turkiye Is Bankasi A.S. would be unreasonable" is expressly made appealable by Code of Civil Procedure section 904.1, subdivision (c).

The complaint names several defendants in addition to Turkish Bank. Its allegations are generally described in the opinion of Division One of this court in Crocker Nat. Bank v. Superior Court (1977) 68 Cal.App.3d 863, 866-868, 136 Cal.Rptr. 481, as follows:

"The underlying verified complaint (No. SOC 44418) filed by plaintiffs (real parties in interest) which was considered by the court below alleges that Natisco, a joint venture comprised of two Alabama corporations, entered into a contract to sell coal (hereinafter Coal Sales Contract) to defendant Turkish Iron and Steel Works (hereinafter Turkish Steel), and that the Coal Sales Contract required that the buyer, Turkish Steel, provide the seller, Natisco, with a letter of credit for the payment of the coal and in addition, required that Natisco, as seller, guarantee its performance by way of a letter of bank guaranty.

"The complaint further alleges that in a separate contract (hereinafter Financing Contract) plaintiffs agreed to furnish a letter of credit in the amount of $522,000 in order to satisfy Natisco's guaranty of performance obligation under the Coal Sales Contract; that in return, Natisco, the two Alabama corporations which formed Natisco, defendant Vulcan Energy Resources, a corporation, and defendant Charles S. Pettyjohn, an individual, agreed to furnish plaintiffs with a true copy of a $243,000 letter of credit allegedly previously secured as part of the seller's performance guaranty under the Coal Sales Contract; that in addition the same parties agreed, inter alia, to give plaintiffs security interests in certain coal, a pledge of stock in the two Alabama corporations which had formed Natisco, the right to certain dollar amounts per ton of coal sold under the Coal Sales Contract and the assignment of Turkish Steel's letter of credit; that the terms and provisions of the Coal Sales Contract were not to be altered, amended or changed without the prior written consent of one of the plaintiffs.

"It is further alleged that on December 4, 1975, plaintiffs arranged to have Crocker issue an irrevocable letter of credit in the amount of $522,000 in favor of the beneficiary, defendant Turkiye Is Bankasi AS (hereinafter Turkish Bank); that the initial documentary requirement provided that the Turkish Bank furnish an authenticated cable stating that the amount drawn represents the amount it was required to pay under its guaranty of performance by Natisco for the delivery of coal in 1976 to Turkish Steel under the Coal Sales Contract and providing that the expiration date was December 31, 1976; that on December 5, 1975, that documentary requirement was cancelled in its entirety and a substituted documentary requirement provided for a signed statement by the Turkish Bank stating that the amount drawn represents the amount it was obligated to pay under its guarantee validity (unlimited in time) to Turkish Steel for the sum of up to $522,000 covering performance under the Coal Sales Contract (identified by reference numbers, date and parties) for the account of Natisco pertaining to shipments of 450,000 tons of coal to be delivered in 1976 according to the delivery schedule in the Coal Sales Contract; that the substituted provisions also stated that the letter of credit would be automatically extendable for further periods of six months until the Turkish Bank's guaranty was returned to it.

"The complaint additionally alleged that in March 1976 the Coal Sales Contract was amended in writing by Turkish Steel and Natisco without plaintiffs' consent which had the effect of altering and diminishing plaintiffs' rights under the Financing Contract and making plaintiffs' letter of credit a guaranty and performance bond as to the amended Coal Sales Contract.

"The complaint further sets forth that after the parties (other than plaintiffs) failed to fulfill their obligations under the Financing Contract, on April 13, 1976 plaintiffs foreclosed upon the pledge of stock and thereby became the owner of all of the stock in one of the Alabama corporations and 98 percent of the stock in the other; that plaintiffs brought an action in Alabama against defendant Pettyjohn and others (who are not named defendants in the California action); that the Alabama court found that the defendants in the Alabama proceedings had made shipments of coal under the Coal Sales Contract after April 13, 1976, without authority to make such shipments on behalf of Natisco which plaintiffs then owned by reason of the foreclosure of stock; that the Alabama court permanently restrained the Alabama defendant from acting under the name of Natisco, from using the letters of credit emanating from the Coal Sales Contract, from making shipments of coal under the Coal Sales Contract with Turkish Steel, and from referring to the Coal Sales Contract by its reference numbers.

"The complaint alleges that the defendants ¹ (excluding Crocker) have entered into a common plan or scheme to obtain and usurp the benefits of the Coal Sales Contract and plaintiffs' letter of credit; to prevent Natisco from performing under, or obtaining the benefits of, the Coal Sales Contract; to represent that they were authorized to act on behalf of Natisco; and to create irreparable injury to plaintiffs including the loss of $522,000 if demand is made upon the Crocker letter of credit."

The allegations concerning the alleged "common plan or scheme" require further description. Paragraph 29 of the complaint states: "The defendants herein, excluding the defendant Crocker National Bank, in doing the matters and things set forth herein, and in failing to do the matters and things set forth herein, did the same pursuant to a common plan, scheme, conspiracy, design and agreement among themselves, each acting as agent one for the other, with the permission, consent and authority of each other, to among other things": (1) obtain for themselves the benefits of the Coal Sales Agreement and of the letter of credit; and (2) place plaintiffs in the position where they would sustain a loss if Crocker made demand under said letter of credit. A thorough search of the complaint, however, fails to disclose any allegation that Turkish Bank itself either did or failed to do anything. There is only the general allegation that anything done by all the defendants was done with its consent and authority and as its agent, and the conclusory allegation that all the defendants except Crocker "are conducting themselves and dealing with each other so as to deprive 'NATISCO' and plaintiffs of the benefits" of the Coal Agreement and the financing contract.

Turkish Bank's motion to quash service of summons was made several months after the complaint had been filed. One ground for quashing the service was the claim that "(t)he courts of this state lack personal jurisdiction over Turkish Bank." It was supported by affidavits delineating the nature of Turkish Bank's connection with California and describing its participation in the issuance of a letter of guarantee in favor of Turkish Steel.

The affidavit of the manager of Turkish Bank's foreign department at the head office set forth the following facts relating to Turkish Bank's presence in California as bearing upon the question of general jurisdiction:

"Turkish Bank has never maintained any branches or offices, retained any agents, had any customers, solicited business of any kind, advertised, owned any real property or paid any taxes in California. With the exception of a bank account with a correspondent bank, Turkish Bank has never kept or owned any personal property in California.

"Turkish Bank's sole connection with California arises from international banking transactions conducted exclusively between banks . . .."

This affidavit specifies the various classes of banking transactions conducted, including "(1) the receipt and transmission of letters of credit, (2) processing documentary collections, (3) issuance and receipt of payment orders, (4) furnishing credit worthiness reports on Turkish Bank's customers in Turkey and (5) negotiating traveler's checks." The affidavit further states: "In order to assure prompt payment of such items as letters of credit and payment orders sent to correspondent banks in California, Turkish Bank maintains a single bank account with a correspondent bank in California."

A detailed description of the various categories of banking transactions follows. The only details in this respect pertinent to the issues on this appeal, however, are descriptions of the practices of the international banking community with respect to letter of credit transactions. These include transactions in which a letter of guarantee or "standby letter of credit" is employed. Most often, as in this case, a two-stage transaction occurs. The first stage is the issuance of a letter of credit or guarantee by the...