Compass Bank v. Morris Cerullo World Evangelism , 696 F. App'x 184 ( 2017 )

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NOT FOR PUBLICATION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.
2
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
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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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