Trans Meridian Trading Inc. v. Empresa Nacional de Comercializacion de Insumos, 86-6627
| Decision Date | 09 October 1987 |
| Docket Number | No. 86-6627,86-6627 |
| Parties | 4 UCC Rep.Serv.2d 1526 TRANS MERIDIAN TRADING INC., Plaintiff-Appellant, v. EMPRESA NACIONAL DE COMERCIALIZACION DE INSUMOS, Multinacional Latinoamericana De Comercializacion De Fertilizantes, Banque Indosuez, and Banco Continental, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Mark B. Gilmartin, Los Angeles, Cal., for plaintiff-appellant.
John E. Burns, Los Angeles, Cal., for defendant-appellee Banco Continental.
Appeal from the United States District Court for the Central District of California.
Before WALLACE, HALL and LEAVY, Circuit Judges.
This action involves a letter of credit issued by Banque Indosuez in favor of Banco Continental at the request of Trans Meridian Trading Inc. (TMTI). Banco Continental has demanded payment on the letter of credit. TMTI seeks to enjoin Banco Continental from demanding payment and Banque Indosuez from making payment. The district court denied TMTI's motion for a preliminary injunction. This court granted TMTI's request for a stay pending appeal. We now affirm the district court's decision and lift the stay.
Defendant Multinacional Latinoamericana de Comercializacion de Fertilizantes (MULTIFERT) is a Panamanian company that acts as a bid solicitation agent for various Latin American countries. It solicited a bid from TMTI to supply fertilizer to Empresa Nacional de Comercializacion de Insumos (ENCI). TMTI is a California corporation. ENCI is a corporation wholly owned by the government of Peru.
On July 7, 1986, 1 TMTI submitted its bid to MULTIFERT. As a condition of bid submission, TMTI was required to post a bond in favor of ENCI and MULTIFERT. At TMTI's request, Banque Indosuez-Los Angeles issued the bid bond through Banque Indosuez-Panama. In consideration therefor, Banque Indosuez-Los Angeles issued letter of credit no. 1441-SB (LC 1441-SB) in favor of Banque Indosuez-Panama for $100,400.
In its bid, TMTI required that ENCI's payment be by an irrevocable and confirmed letter of credit issued by a prime United States bank. The bid also stated that if ENCI failed to post such a letter of On July 14, MULTIFERT accepted, on behalf of ENCI, a portion of TMTI's bid involving large quantities of fertilizer. The acceptance restated ENCI's obligation to establish a letter of credit at a prime United States bank prior to shipment. TMTI sent MULTIFERT a draft format for the letter of credit that ENCI should post, stating a proposed value of $3,638,932.50 and noting shipping dates for the two shipments necessary to fill ENCI's order.
credit, the fertilizer shipment would be delayed.
The contract also required TMTI to post a performance bond in favor of ENCI through a bank in Lima totaling six percent of the contract price, or $205,239. Banque Indosuez-Los Angeles arranged the issuance of a performance bond in favor of ENCI through Banco Continental. Banco Continental is located in Lima and describes itself as "indirectly owned by agencies of the government of Peru." In consideration for the performance bond, Banque Indosuez-Los Angeles issued letter of credit no. 1459-SB (LC 1459-SB) for $205,239 to Banco Continental on behalf of TMTI.
Under LC 1459-SB, Banque Indosuez was obligated to pay Banco Continental $205,239 upon Banco Continental's presentation of two documents: (1) Banco Continental's certification that it had been called upon to pay under the performance bond, and (2) an original statement "purportedly signed by the Gerente General of ENCI" that TMTI had been awarded the fertilizer contract but failed to deliver the fertilizer. LC 1459-SB also stated that "it is a condition of this letter of credit that our standby letter of credit no. 1441-SB ... is now null and void." Finally, LC 1459-SB provided that "this credit is subject to the Uniform Customs and Practice for Documentary Credit (1983 Revision) International Chamber of Commerce (Publication no. 400)."
In two telexes Banco Continental requested that Banque Indosuez-Los Angeles delete from LC 1459-SB the condition that LC 1441-SB is null and void, because Banco Continental was not involved in the LC 1441-SB transaction. TMTI asked MULTIFERT to release LC 1441-SB, as required by LC 1459-SB. MULTIFERT replied it would do so once it determined that TMTI's performance bond was satisfactory. The record does not show whether LC 1441-SB was ever released. It expired by its own terms on August 30.
From July 28 through August 12 TMTI and ENCI or MULTIFERT exchanged telexes regarding vessel nomination, shipping dates, and ENCI's posting letters of credit. ENCI apparently believed it had a contractual shipping window of August 1-15 for the first shipment, whereas TMTI believed it had no obligation to confirm shipment dates until ENCI posted an acceptable letter of credit. ENCI opened two letters of credit in favor of TMTI, however, TMTI found them unacceptable because they were not opened at a prime United States bank. TMTI claims it arranged at least one vessel and shipping date, but was forced to cancel because it had not received an acceptable letter of credit from ENCI.
On August 15, TMTI advised ENCI of its vessel nominations for loading approximately August 25-September 5 and September 10-20. TMTI also requested that ENCI open new letters of credit and amend those already opened.
On August 16, the New York Times reported that the International Monetary Fund had declared Peru ineligible for new loans. TMTI expressed concern about this report.
On August 18, ENCI notified TMTI that it considered the contract cancelled because of TMTI's failure to ship within the contract period.
On August 22, ENCI requested payment from Banco Continental on the performance bond. That same day, Banco Continental requested payment of $205,239 from Banque Indosuez-Los Angeles under LC 1459-SB. Banco Continental certified to Banque Indosuez that all terms and conditions of the letter of credit had been met and that the relevant documents were being forwarded.
On August 26, TMTI filed this action against ENCI, MULTIFERT, and Banque On September 5, Banco Continental paid ENCI under the performance bond. On September 13, TMTI filed its first amended complaint, adding Banco Continental as a defendant.
Indosuez claiming breach of contract and fraud. On August 27, the district court issued a temporary restraining order (TRO) enjoining Banque Indosuez from paying under either letter of credit and set a preliminary injunction hearing for September 5. Banque Indosuez and TMTI notified Banco Continental of the TRO on August 27 and 29.
TMTI claims that Banco Continental's request for payment under LC 1459-SB was fraudulent. TMTI alleges Banco Continental knew or should have known that the documents ENCI presented to it falsely stated that all the terms and conditions of LC 1459-SB had been met when, in fact, TMTI had not failed to perform under the contract. TMTI alleges that because ENCI and Banco Continental are controlled by the Peruvian government, and because of a financial crisis facing Peru, "a scheme was developed whereby ENCI and Banco Continental would defraud [TMTI] by having ENCI induce [TMTI] to delay the first shipment of [fertilizer] and then have Banco Continental make a fraudulent demand for payment upon Banque Indosuez under Letter of Credit No. 1459-SB."
TMTI contends it is entitled to a preliminary injunction because:
(1) LC 1459-SB provides that the law governing the transaction is the Uniform Customs and Practice for Documentary Credit (UCP), which TMTI argues allows the district court to enjoin payment on letters of credit;
(2) If California law applies, California law allows an injunction prohibiting either the issuer from paying on a letter of credit or the beneficiary from demanding payment on a letter of credit; and
(3) TMTI has demonstrated it meets the requirements for a preliminary injunction.
The district court held that California law governs the transaction, that it does not allow the court to enjoin letters of credit, and that TMTI is not entitled to a preliminary injunction.
On appeal, TMTI specifies the conditions of LC 1459-SB which it believes were not met: (1) LC 1441-SB had not been voided when Banco Continental demanded payment, and (2) no evidence was produced in district court that the original statement purportedly signed by the Gerente General of ENCI stating that TMTI had failed to perform was delivered to Banque Indosuez.
In response, Banco Continental claims: (1) it had no involvement whatsoever in LC 1441-SB, and (2) the Gerente General's statement was not produced as evidence in the district court because TMTI did not raise it as an issue until this appeal.
This court reviews de novo a district court's determination of state law. In re McLinn, 739 F.2d 1395, 1397 (9th Cir.1984) (en banc). This is true, as well, for questions of law underlying a preliminary injunction motion. California ex rel. Van de Kamp v. Tahoe Regional Planning Agency, 766 F.2d 1308, 1312 (9th Cir.1985). We review a district court's findings of fact under the clearly erroneous standard. Colorado River Indian Tribes v. Town of Parker, 776 F.2d 846, 849 (9th Cir.1985).
TMTI argues that because LC 1459-SB contains a provision that the document is subject to the Uniform Customs and Practice Act for Documentary Credit, the UCP governs to the exclusion of California law. Banco Continental contends that California law applies.
In a diversity action, a federal court must apply the choice of law rules of the state in which the action was filed. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); In re Yagman, 796 F.2d 1165, 1170 (9th Cir.1986). Thus, California's choice of law rules apply to this case.
California applies the governmental interest analysis in choosing...
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