Wyle v. Bank Melli of Tehran, Iran, C-80-1131 RFP.

• Decision Date: 15 September 1983
• Docket Number: No. C-80-1131 RFP.,C-80-1131 RFP.
• Court: U.S. District Court — Northern District of California
• Parties: Frederick S. WYLE, Trustee in Bankruptcy of Pacific Far East Line, Inc. and Atlantic Bear Steamship Co., Plaintiff, v. BANK MELLI OF TEHRAN, IRAN; Ports & Shipping Organization of Bushire, Iran; Islamic Republic of Iran; and Bank of California, Defendants.

577 F. Supp. 1148

Frederick S. WYLE, Trustee in Bankruptcy of Pacific Far East Line, Inc. and Atlantic Bear Steamship Co., Plaintiff, v. BANK MELLI OF TEHRAN, IRAN; Ports & Shipping Organization of Bushire, Iran; Islamic Republic of Iran; and Bank of California, Defendants.

No. C-80-1131 RFP.

United States District Court, N.D. California.

September 15, 1983.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Cynthia M. Cohen, Stutman, Triester & Glatt, P.C., Los Angeles, Cal., for plaintiff.

Michael Connell, San Francisco, Cal., John E. Carne, Crosby, Heafey, Roach & May, Oakland, Cal., Daniel P. Levitt, Greg A. Danilow, Arthur H. Aufses, Kramer, Levin, Nessen, Kamin & Soll, New York City, for defendants.

Memorandum Opinion

PECKHAM, Chief Judge.

The above-entitled action was tried to the court. Having considered the evidence and the authorities provided by the parties, the court now enters its findings of fact and conclusions of law in the form of this memorandum opinion.

I. FACTS

During and after 1976, continuing until the second quarter of 1978, Pacific Far East Line, Inc. ("PFEL") and its subsidiary, Atlantic Bear Steamship Co. ("Atlantic")¹ engaged in shipping operations into the Port of Bushire, Iran. As a condition of carrying on these operations, the Ports and Shipping Organization of Bushire, Iran ("PSO") required that PFEL maintain a bond in Iran to cover claims for lost or damaged cargo. Prior to the fall of 1976, PFEL had employed as its agent in Iran a company named Seaman Pac. Seaman Pac maintained its own bond in the amount of $100,000, which covered PFEL for claims against lost or damaged cargo.

In the fall of 1976, PFEL decided to change agents. At PFEL's instigation, a new company named PFEL-Iran was formed to act as PFEL's agent in Iran. PFEL-Iran was a completely separate entity neither owned nor controlled by PFEL. In the course of changing agents, a new indemnity arrangement was established, and is now the subject matter of this litigation. The new arrangement involved "back-to-back" guarantees.

PSO wanted a guarantee from an Iranian bank, Bank Melli. PFEL arranged a letter of credit from its bank, Bank of California in San Francisco, to indemnify Bank Melli in the event that PSO should call on Bank Melli's guarantee. To secure Bank of California, PFEL placed funds with the bank in a certificate of deposit. PFEL's initial letter of credit application, dated September 29, 1976 (Px 2), for Bank of California letter of credit number 55851, was for a performance bond in the amount of $200,000 and set forth conditions for payment on the letter of credit which included documentation of claims for missing or damaged cargoes caused by negligence of PFEL. When issued on October 12, 1976, letter of credit 55851 (Px 3) embodied the documentation condition requested by PFEL.

The documentation requirement proved unacceptable to PSO. PSO required that Bank Melli's guarantee be payable against a "simple demand," and also that the original expiration date of the guarantee — October 15, 1977 — be extendable at the request of PSO. Bank Melli, in turn, required that letter of credit 55851 be amended in the same manner — by deleting the documentation requirement and making extensions available upon request — before it would issue to PSO, its guarantee which would enable PFEL to continue doing business in Iran. Although James Hitt, who at the time of these events was PFEL's Vice-President responsible for making these arrangements, testified that eliminating the documentation requirement made him uncomfortable, he bowed to the demand so that PFEL might continue carrying cargoes to Iran.

The intended scope of the guarantee arrangement was a contested issue in this litigation. The correspondence over the amendment does not show that PSO intended, much less that PFEL agreed, to enlarge the scope of coverage beyond cargo claims. There was unrebutted testimony that this guarantee replaced a prior bond for damaged cargo. The most reasonable inference on this record is that the deletion of the documentation requirement was not intended to and did not broaden the scope of coverage, and the court so finds.

On January 9, 1977, PSO and PFEL-Iran entered into an agreement (Dx 2), which created numerous obligations and potential liabilities for PFEL-Iran. Defendants² argued that Article 5 of this agreement incorporated the PFEL-Bank of California-Bank Melli-PSO indemnity arrangement. Thus, defendants claim, Article 5 either made letter of credit 55851 liable for PFEL-Iran's obligations or stated the prior understanding of the parties to that effect. The defendants' claim finds some support in the fact that the amount of the "Well Performance Guarantee" specified by Article 5 — 25,000,000 rials — at then current exchange rates was equivalent to $357,000, and the amount available under letter of credit 55851 had been increased on November 23, 1976 to $355,000. The closeness of these two figures suggests that there could have been some link between the two guarantees.

On the other hand, PFEL is not a party to the January 9 agreement. The agreement makes specific reference to PFEL only once, in Article 3, section 9, which limits PFEL-Iran to unloading shipments of PFEL, "which has accepted the short landing and all the compensations in all stages up to the time of delivering goods to owners, and undertakes to maintain & load them in suitable manner & conditions. sic" (emphasis added). The section does allow PFEL-Iran with PSO's consent to unload shipments from other shipping lines "which similar to the above Line accepts all kinds of responsibilities in this respect." This specific reference to PFEL's guarantee and its specific purpose in another part of the agreement tends to rebut the inference that PFEL's guarantee is also the Article 5 guarantee covering all of PFEL-Iran's obligations.

Moreover, PFEL-Iran sent a telex (Px 7) to PFEL reporting that the agreement had been signed, and saying, inter alia, "PFEL Iran Ltd is your agents in Iran and also the responsibility of loss or damage to the cargoes unloaded from your vessels at the Bushire facilities of PFEL Iran will be yours till the time of delivery to the consignees." Notably, the statement of PFEL's responsibilities did not — contrary to defendants' suggestion — include PFEL-Iran's tax or wage liabilities. It is fully consistent with Mr. Hitt's testimony regarding what he understood to be the scope of PFEL's liability. The Certificate issued by PFEL in response to this telex on January 11, 1977, reflects the same scope of liability.

Finally, the coincidence of the amount of the two guarantees is reduced to insignificance when both are stated in rials — about 25,000,000 — as opposed to dollars. In rials, the figure is a round amount that could well have been a standard requirement for entities doing business with PSO, which included in this case both PFEL and PFEL-Iran. The court finds that the January 9, 1977 agreement did not enlarge the scope of PFEL's liability on its indemnity arrangement incorporating letter of credit 55851 nor did it reflect any prior agreement to enlarge the scope of liability beyond responsibility for lost or damaged cargo.

PFEL ceased doing any business in Iran in the second quarter of 1978. PFEL and Atlantic had filed for bankruptcy in early 1978. The indemnity arrangement was still in effect at that time, letter of credit 55851 having been extended from time to time. During the period of PFEL's active operations to Iran, only one claim was made against the guarantee in the approximate amount of $15,000. Mr. Hitt investigated this claim and received documents through PFEL-Iran that satisfied him that the claim did in fact involve damaged cargo. He wrote a check to Bank of California, which had paid on Bank Melli's demand, to bring the amount of the letter of credit back up to $355,000.

In February, 1978, Bank Melli requested an additional extension of letter of credit 55851 through April 20, 1979, or, in the alternative as provided by the terms of the letter, payment of the amount guaranteed. (Px 15-17). This extension was given. After the cessation of operations, Hitt attempted to have the guarantee and letter of credit terminated, and accordingly tried to arrange for public notice to be published in an Iranian newspaper so that any outstanding claims could be closed, but there is no evidence as to whether this plan was actually executed in Iran.

A claim for $12,396.25 (Px 19) was apparently transmitted on October 5, 1978 and paid shortly thereafter, since subsequent extensions of the letter of credit refer to the amount outstanding as $342,612.35 (the small discrepancy in these figures, which add up to $355,008.60, is unexplained). Further extensions on the letter of credit were requested and given in March, 1979, to run through September 22, 1979; in September, 1979, to run through April 19, 1980; and in March, 1980, to run through October 22, 1980.

When the March, 1979 request for extension was made, Mr. William Miles, a Vice-President in the International Division of Bank of California, sent a message to Levon Djanece, the Chief Agent of the New York office of Bank Melli, and also a director of the Bank. The communication stated that PFEL had operated no vessels to Bushire for more than a year and had no plans to resume service there. Miles asked Djanece, whom he knew personally, to make inquiries into PSO's continuing need for the guarantee arrangement. In a subsequent telephone call, Djanece told Miles that he had put the question "To Tehran to the right people" and that Miles would be hearing from them directly. Nothing further was heard, however.

On March 26, 1980, Bank Melli made demand on Bank of California for payment of the full amount available under letter of credit 55851, stating that PSO had claimed Bank Melli's guarantee amount "for non fulfilment all agreed obligations sic" (Px 24). This...