Court Opinion

ID: 4173786
Source: CourtListenerOpinion
Date Created: 2017-06-01 20:04:38.867003+00
Date Added: 2024-06-11T07:47:09.344757
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                             JUN 01 2017
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                           U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

COMPASS BANK, DBA BBVA                           No.   15-56417
Compass, an Alabama Banking
Corporation,                                     D.C. No.
                                                 3:13-cv-00654-BAS-WVG
              Plaintiff-counter-
              defendant-Appellee,
                                                 MEMORANDUM*
 v.

MORRIS CERULLO WORLD
EVANGELISM, a California corporation,

              Defendant-counter-claimant-
              Appellant.

                   Appeal from the United States District Court
                      for the Southern District of California
                   Cynthia A. Bashant, District Judge, Presiding

                       Argued and Submitted March 6, 2017
                              Pasadena, California

Before: PREGERSON, PAEZ, and BERZON, Circuit Judges.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
       Defendant-Appellant Morris Cerullo World Evangelism (“the Ministry”)

appeals the district court’s denial of its Rule 15(b)(2) motion to conform the

pleadings to evidence, arguing that a claim for wrongful dishonor of a letter of

credit under the California Commercial Code was raised by the pleadings and tried

by the consent of the parties at trial. See Fed. R. Civ. P. 15(b)(2). The Ministry

further argues it has proven that Plaintiff-Appellee Compass Bank wrongfully

dishonored a letter of credit purportedly issued by the Bank and is thus liable to the

Ministry for damages.1

       We may assume, although the issue is disputed, that the parties properly

raised a claim of wrongful dishonor or associated defenses in the pleadings or

actually litigated such claims at trial. But a letter of credit must exist for a claim of

wrongful dishonor to be adjudicated. See Cal. Com. Code §§ 5103, 5104, 5108(e).

Here, the district court expressly decided “there is no actual letter of credit in this

case,” a conclusion which, if supported by the record, precludes relief on a

wrongful dishonor claim or defense.

       1
         The Ministry did not challenge the district court’s denial of its breach of
contract claim in its briefing before this court, although counsel for the Ministry
maintained at oral argument that the ministry does contest that ruling. This court
“will not ordinarily consider matters on appeal that are not specifically and
distinctly argued in appellant’s opening brief.” Miller v. Fairchild Indus., Inc., 797
F.2d 727, 738 (9th Cir. 1986). We decline to do so here.

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      The district court’s finding that no letter of credit existed was not clear error.
See In re Lansford, 822 F.2d 902, 904 (9th Cir. 1987). Jack Wilkinson, a vice

president and retail manager of one of Compass Bank’s branches, conspired with

outside actors to prepare a document that purported to be a letter of credit issued by

the Bank in favor of the Ministry. Compass Bank is not bound by Wilkinson’s

actions because Wilkinson had neither actual or ostensible authority to issue the

instrument.

      The record supports the district court’s factual finding that the International

Trade Services Department had sole authority to issue letters of credit on behalf of

Compass Bank. As a branch manager, Wilkinson thus did not have actual

authority to issue a letter of credit. The district court did not expressly address

whether Wilkinson acted with ostensible authority when he purported to issue a

letter of credit in favor of the Ministry on behalf of Compass Bank. The court did,

however, in ruling on the Ministry’s promissory estoppel claim, consider the

relevant elements of ostensible authority under California law. “The elements

necessary to fasten liability upon the principal [on an ostensible agency theory]

closely resemble those which give rise to an estoppel.” House v. State of

California, 119 Cal. App. 3d 861, 875 (1981). In particular, liability under both

promissory estoppel and ostensible authority theories requires justifiable reliance

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by the third party. See Snukal v. Flightways Mfg., Inc., 23 Cal. 4th 754, 779

(2000); Granadino v. Wells Fargo Bank, N.A., 236 Cal. App. 4th 411, 416 (2015),

as modified (Apr. 29, 2015).

      An agent acts with ostensible authority when a “principal, intentionally or by

want of ordinary care, causes or allows a third person to believe the agent to

possess” that authority. Cal. Civ. Code § 2317. A third party can only recover

against a principal on an ostensible agency theory if they had “a reasonable belief

in the agent’s authority, such belief [was] generated by some act or neglect by the

principal sought to be charged[,] and the person relying on the agent’s apparent

authority must not be negligent in holding that belief.” Markow v. Rosner, 3 Cal.

App. 5th 1027, 1038 (2016), review denied (Jan. 11, 2017) (quoting J.L. v.

Children’s Inst., Inc., 177 Cal. App. 4th 388, 403-04 (2009)); see also Cal. Civ.

Code § 2334 (“A principal is bound by acts of his agent, under a merely ostensible

authority, to those persons only who have in good faith, and without want of

ordinary care, incurred a liability or parted with value, upon the faith thereof.”).

      In the context of promissory estoppel, the district court expressly found

unreasonable the Ministry’s reliance on Wilkinson’s promise that the purported

letter of credit was issued by Compass Bank and was valid and enforceable. The

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district court thus decided one of the elements of ostensible authority— reasonable

reliance.

      Reviewing this finding of fact for clear error, we affirm it. See In re

Lansford, 822 F.2d at 904. Numerous indicia of fraud were or should have been

evident to the Ministry with regard to the “confidential offering” and the proposed

loan transaction. In fact, these indicia raised the suspicion of the Ministry’s

decision makers and led them to initially reject the loan transaction. In addition,

the disputed instrument had many defects on its face, including inaccurate dates

and names of parties, an outdated address for Compass Bank, and an incoherent

reference to nonexistent bracketed text. The district court thus did not err in

finding, in light of the numerous red flags associated with the transaction, that the

Ministry did not act reasonably when it relied on Wilkinson’s assurances.

      The district court’s review of the underlying transaction in determining that

the Ministry unreasonably relied on Wilkinson’s representations did not contravene

the so-called independence principle, which provides that the “issuing bank’s

obligation created by the letter of credit is totally independent of the other

contracts.” Murphy v. F.D.I.C., 38 F.3d 1490, 1502 (9th Cir. 1994) (quoting Sound

of Mkt. St., Inc. v. Cont’l Bank Int’l, 819 F.2d 384, 388 (3d Cir. 1987)); see also

Cal. Com. Code § 5103(d). The independence principle applies when a letter of

                                           5
credit actually exists and there is a dispute about the issuer’s and beneficiary’s

rights and obligations under the instrument. See Cal. Com. Code § 5103(a), (d).

The independence principle has no place when making the threshold determination

about whether a letter of credit exists, an inquiry which determines whether Article

5 of the Commercial Code, and the independence principle contained in Section

5103(d), even apply. See Cal. Com. Code § 5103(a) (“This division applies to

letters of credit and to certain rights and obligations arising out of transactions

involving letters of credit.”); cf. Bouzo v. Citibank, N.A., 96 F.3d 51, 57 (2d Cir.

1996) (“To be within the scope of Article 5, a letter of credit issued by a bank must

either conspicuously state that it is a letter of credit or be conspicuously so entitled,

or require a documentary draft or a documentary demand for payment.”) (emphasis

added) (internal quotation marks and alterations omitted) (citing N.Y.U.C.C. §§ 5-

102(a)(1), 5-102(1)(c)).

       Absent a valid letter of credit, any claim the Ministry could make for

wrongful dishonor under the California Commercial Code cannot survive. We

thus affirm the district court’s denial of the Ministry’s Rule 15(b) motion to

conform the pleadings to the evidence in this case, as any such amendment would

be futile.

       AFFIRMED.

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