Moog World Trade v. Bancomer, S.A.

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No. 95-2959
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Moog World Trade Corporation, *
*
Plaintiff - Appellant, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
Bancomer, S.A.; Boatmen's *
National Bank of St. Louis, *
*
Defendants - Appellees. *
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Submitted: February 16, 1996
Filed: July 30, 1996
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Before LOKEN, BRIGHT, and MORRIS SHEPPARD ARNOLD, Circuit Judges.
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LOKEN, Circuit Judge.
This case requires us to apply the familiar due process limitation
on personal jurisdiction to the rather unfamiliar realities of financing
international trade. Moog World Trade Corp. ("Moog") agreed to sell
automobile parts to its customer in Mexico, Commercializadora de
Refacciones en Generales S.A. ("CRG"). To finance this purchase, CRG had
its Mexican bank, Bancomer, S.A., issue an irrevocable commercial letter
of credit naming Moog as beneficiary. When Moog's draw under the letter
of credit was dishonored by Boatmen's National Bank, the Missouri
confirming bank, Moog sued Boatmen's and Bancomer. The district court1
dismissed Bancomer for lack of personal jurisdiction, and Moog appeals that
ruling. We affirm.
1
The HONORABLE CATHERINE D. PERRY, United States District
Judge for the Eastern District of Missouri.
I.
Bancomer issued the letter of credit in August 1992 at the request
of its customer, CRG. The letter of credit promised that Moog as
beneficiary would be paid $383,636 at Boatmen's offices in St. Louis upon
Moog's timely presentation of a sixty-day time draft accompanied by
specified documents confirming that Moog had shipped the auto parts to CRG.
Bancomer issued the letter of credit by a tested telex to Boatmen's.
Boatmen's then sent the letter of credit to Moog, with a cover letter
explaining:
We enclose herewith an authenticated irrevocable letter of
credit opened in your favor by [Bancomer].
* * * * *
Drafts are to be drawn on the Boatmen's National Bank of St.
Louis, St. Louis, Missouri.
* * * * *
We [Boatmen's] add our confirmation to the issuing bank's
letter of credit and engage with you that draft(s) and/or
documents drawn under and in compliance with the terms of this
credit will be duly honored.2
Two weeks before the letter of credit expired, Moog presented a draft
and supporting documents to Boatmen's, which dishonored the draw, noting
discrepancies between the shipping documents and the letter of credit's
specifications. Moog had time to cure these discrepancies by submitting
amended documents to Boatmen's.
2
Confirmation "constitutes a definite undertaking of
[Boatmen's], in addition to that of [Bancomer] . . . to pay, or
that payment will be made," if Moog makes a proper draw under the
letter of credit. Uniform Customs and Practices for Documentary
Credits, Art. 10.b.i., Int'l Chamber of Commerce Pub. No. 400 (eff.
Oct. 1, 1984) ("UCP"). The UCP is an internationally accepted
codification of banking practice and custom regarding letters of
credit. Under Missouri law, if a letter of credit so provides, as
Bancomer's did, the UCP supplants Article 5 of Missouri's uniform
commercial code. See Mo. Ann. Stat. § 400.5-102(4).
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Instead, Moog instructed Boatmen's to present the dishonored documents to
Bancomer in Mexico. When Bancomer refused to honor the draw, citing six
alleged documentary discrepancies, a Moog representative and its attorney
visited Bancomer's office in Guadalajara, Mexico, requesting an explanation
of the dishonor. Bancomer responded that Moog should contact Boatmen's.
With the letter of credit now expired, Moog brought this diversity
action, claiming wrongful dishonor and untimely notice of dishonor by both
banks. The district court dismissed Bancomer for lack of personal
jurisdiction and dismissed the untimely-notice-of-dishonor claim against
Boatmen's on the merits. Moog dismissed its wrongful dishonor claim
against Boatmen's without prejudice and appealed the district court's
rulings. Moog later dismissed its appeal against Boatmen's, leaving for
us only the question whether the district court has personal jurisdiction
over Bancomer.
"Once a defendant has challenged a federal court's jurisdiction, the
plaintiff bears the burden of proving that jurisdiction exists." Falkirk
Mining Co. v. Japan Steel Works, Ltd., 906 F.2d 369, 373 (8th Cir. 1990).
Bancomer challenged the district court's jurisdiction, submitting
uncontroverted evidence that it has no office, employee, or property in
Missouri; is not qualified to do business in Missouri; pays no Missouri
taxes; and transacts no other business in Missouri. Moog responded by
submitting uncontroverted evidence that, in the two years prior to August
1992, Bancomer issued thirty-six letters of credit in favor of Missouri
beneficiaries, in the total amount of $4.7 million, including four prior
letters of credit at the request of CRG for the benefit of Moog in amounts
of $100,000, $200,000, $250,000, and $389,000. Because the record does
not reflect the status of the transaction between Moog and CRG underlying
the letter of credit, and because the letter of credit is independent of
that underlying transaction, the personal jurisdiction issue turns entirely
upon the letter of credit facts of record. We review this jurisdiction
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issue de novo. See General Elec. Capital Corp. v. Grossman, 991 F.2d 1376,
1387 (8th Cir. 1993).
II.
The federal court in a diversity case must determine whether
defendant is subject to the court's jurisdiction under the state long arm
statute, and if so, whether exercise of that jurisdiction comports with due
process. As pertinent here, the Missouri long arm statute confers
jurisdiction over "any cause of action arising from . . . (1) [t]he
transaction of any business within this state [or] (2) [t]he making of any
contract within this state." Mo. Ann. Stat. § 506.500.1. Missouri courts
have construed this statute "to extend the jurisdiction of the courts of
this state over nonresident defendants to the extent permissible under the
Due Process Clause." State ex rel. Deere & Co. v. Pinnell, 454 S.W.2d 889,
892 (Mo. banc 1970). Jurisdiction must be based upon "the act or conduct
set forth in the statute" (as opposed to conduct not encompassed by the
statute that might otherwise be a permissible basis for jurisdiction), and
the cause of action must arise from the nonresident defendant's activities
in Missouri. Scullin Steel Co. v. National Ry. Utilization Corp., 676 F.2d
309, 312 (8th Cir. 1983).
Though it is often difficult to apply, the governing due process
standard is well-established in this circuit:
The due process clause requires there be "minimum
contacts" between the defendant and the forum state before the
forum state may exercise jurisdiction over the defendant.
Worldwide Volkswagen v. Woodson, 444 U.S. 286, 291 (1980).
Sufficient contacts exist when "the defendant's conduct and
connection with the forum State are such that he should
reasonably anticipate being haled into court there," id. at
297, and when "maintenance of the suit does not offend
'traditional notions of fair play and substantial justice.'"
International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)
(quoting Milliken
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v. Meyer, 311 U.S. 457, 463 (1940)). In assessing the
defendant's "reasonable anticipation," there must be "'some act
by which the defendant purposefully avails itself of the
privilege of conducting activities within the forum State, thus
invoking the benefits and protections of its laws.'" Burger
King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (quoting
Hanson v. Denckla, 357 U.S. 235, 253 (1958)).
General Electric, 991 F.2d at 1387, quoting Soo Line R.R. v. Hawker
Siddeley Can., Inc., 950 F.2d 526, 528-29 (8th Cir. 1991). To put the
issues of fair play, reasonable anticipation, and purposeful availing in
proper perspective, we must examine the purposes and functioning of an
international commercial letter of credit.
Letters of credit have been used for nearly 3000 years. Though they
stretch common law contract principles such as consideration, letters of
credit were eventually accepted and enforced by Anglo-American common law
courts. See Rufus J. Trimble, The Law Merchant and the Letter of Credit,
61 Harv. L. Rev. 981, 983-88 (1948). In the present-day United States,
letter of credit principles have been codified in Article 5 of the uniform
commercial code, which is generally consistent with the internationally
promulgated UCP.
The commercial letter of credit is widely used to assist sales
transactions, including international export/import transactions. The
parties to such a transaction have conflicting needs and concerns. The
exporter-seller does not wish to part with its goods without knowing it
will be paid, even if the buyer later changes its mind, becomes insolvent,
or claims upon inspection that the goods are non-conforming. The seller
also wants prompt payment in its own currency, even if the buyer needs
credit financing. The importer-buyer, on the other hand, may need credit
financing and in any event does not wish to pay for the goods without firm
evidence that they have been shipped. Each party typically fears
litigation in the other party's "home court."
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The commercial letter of credit bridges these differences. The
buyer's bank issues the letter of credit naming the seller as beneficiary.
The letter of credit is the issuer's irrevocable obligation to pay a stated
amount of money to the seller-beneficiary, at a stated time and place and
in a specified currency. To obtain payment, the seller must present
specified documents, typically, the seller's invoice and shipping
documents, thereby confirming to the buyer that (i) the right goods (ii)
are in the hands of a common carrier (iii) with the agreed-upon costs
prepaid. The letter of credit usually requires the issuing bank to honor
or dishonor the seller's presentation (draw) while the goods are in
transit. If the bank dishonors, it must return the shipping documents to
the seller, who then has the exclusive right to claim the goods from the
carrier. If the draw is honored, the seller is promptly paid, or in a
credit sale is promised payment at a specified time by the credit-worthy
issuing bank, a promise the seller can convert to immediate cash by
discounting. See generally Burton V. McCullough, Letters of Credit
§§ 1.03-1.04 (1995).
This commercial letter of credit transaction creates three distinct
contractual relationships -- the underlying transaction between the buyer
and seller; the buyer's agreement to reimburse the issuing bank for
payments under the letter of credit; and the letter of credit itself. See
McCullough, § 1.05[1] at 1-35 to 1-39 (1995); B.E.I. Int'l, Inc. v. Thai
Military Bank, 978 F.2d 440, 442 (8th Cir. 1992). The simplest commercial
letter of credit contains the issuer's irrevocable promise to pay drafts
drawn by the beneficiary at the issuer's counter (place of business). But
in an international transaction, the seller typically wants to present the
draw locally and to be paid in its own currency; the seller may also want
a local bank to decide whether a draw complies with the letter of credit's
documentary requirements. The seller can meet these concerns by persuading
the buyer to have its bank issue a letter of credit payable at a bank near
the seller's place of business. That bank may be an advising bank --
simply a conduit
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for the issuing bank's decisions -- or it may be a confirming bank that
decides whether the draw complies and thereby "add[s] its own liability to
that of the issuing bank." Venizelos, S.A. v. Chase Manhattan Bank, 425
F.2d 461, 465 (2d Cir. 1970). Here, Moog persuaded CRG to have Bancomer
issue the letter of credit with Boatmen's as confirming bank. With these
fundamental commercial concepts in mind, we return to the jurisdiction
issue.
A.
Moog first argues that Bancomer is subject to personal jurisdiction
because Bancomer made a contract in Missouri, for purposes of
§ 506.500.1(2), when it issued an irrevocable letter of credit that Moog
"accepted" by presenting a draft for payment. We disagree. When Bancomer
issued its letter of credit, it did not make a contract with Moog, it
performed a contract with its Mexican customer, CRG. The identity and
location of CRG's beneficiary was of little if any concern to Bancomer,
because it looked to CRG for both its letter of credit fee and
reimbursement of any payment Bancomer might make under the credit. True,
the letter of credit created a separate, conditional obligation running
from Bancomer to Moog as beneficiary. But that bare letter of credit
obligation, while contractual in nature, was not the making of a contract
with Moog. Nor was it the transacting of business in Missouri, for
purposes of § 506.500.l(1). See State ex rel. Bank of Gering v.
Schoenlaub, 540 S.W.2d 31 (Mo. banc 1976) (Nebraska bank which paid 22
drafts drawn on a Missouri bank payable from the account of the Nebraska
bank's customer was not subject to Missouri long arm jurisdiction in a suit
to recover on six additional drafts the Nebraska bank dishonored). See
also Jet Charter Serv., Inc. v. Koeck, 907 F.2d 1110, 1113-15 (11th Cir.
1990) (no jurisdiction in Florida over Swiss bank for alleged breach of
agreement to issue letter of credit payable in Florida because beneficiary
is not a party to an agreement to issue), cert. denied, 499 U.S. 937
(1991).
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Thus, this theory founders on the first prong of the personal jurisdiction
analysis, the scope of the Missouri long-arm statute.
Moreover, relying upon traditional due process principles, other
federal courts have been virtually unanimous in holding that a bank issuing
a commercial letter of credit at the request of its customer, payable at
the bank's offices, does not without more subject itself to personal
jurisdiction in a distant forum, such as a court where the letter of credit
beneficiary resides. See Pacific Reliant Indus. v. Amerika Samoa Bank, 901
F.2d 735, 737 (9th Cir. 1990); Leney v. Plum Grove Bank, 670 F.2d 878, 880
(10th Cir. 1982); Empire Abrasive Equipment Corp. v. H.H. Watson Inc., 567
F.2d 554, 558 (3d Cir. 1977); Occidental Fire & Cas. Co. v. Continental
Ill. Nat'l Bank, 689 F. Supp. 564, (E.D.N.C. 1988). Similarly, courts have
concluded that there is no jurisdiction over the foreign issuer of a letter
of credit payable elsewhere in the United States. See Chandler v. Barclays
Bank, PLC, 898 F.2d 1148, 1151 (6th Cir. 1990) (Michigan court has no
jurisdiction over Egyptian issuer of a letter of credit payable at
confirming bank in New York); H. Ray Baker, Inc. v. Associated Banking
Corp., 592 F.2d 550, 552 (9th Cir.), cert. denied, 444 U.S. 832 (1979)
(California court has no jurisdiction over Phillipine issuer of letter of
credit payable in New York); Southern Plastics Co. v. Southern Commerce
Bank, 423 S.E.2d 128, 132 (S.C. 1992). As the court explained in Empire
Abrasive, 567 F.2d at 558:
We do not think that by issuing a letter of credit for a
Rhode Island customer, calling for its performance in Rhode
Island, the bank can be said to have subjected itself to the
adjudicatory authority of Pennsylvania with respect to its
obligations under the letter of credit solely because the
beneficiary was a Pennsylvania corporate resident.
We conclude that this reasoning is even more compelling when the
issuer is a foreign bank that has financed an import transaction with a
commercial letter of credit payable at the
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foreign bank's counter. The U.S. seller-beneficiary could have better
protected its interests by delaying shipment until the letter of credit was
honored, or by reclaiming the goods from the carrier after dishonor, or by
making the letter of credit payable at the counter of a U.S. confirming
bank. When the seller has failed to protect itself in this manner, it is
not fair play -- and it risks the future availability of this inexpensive
international banking device -- to subject the foreign bank to the burdens
of wrongful dishonor litigation in the United States.
B.
Moog next contends that there is personal jurisdiction in Missouri
because Bancomer made its letter of credit payable at the Missouri counter
of a confirming bank, Boatmen's. Bancomer's decision (at CRG's request)
to make its letter of credit payable in Missouri, and to enlist the
services of a local confirming bank, is jurisdictionally significant, as
several of the above-cited cases have noted in dicta. See Leney, 670 F.2d
at 880; H. Ray Baker, 592 F.2d at 553; Empire Abrasive, 567 F.2d at 558.
For example, when Boatmen's agreed to act as confirming bank, Bancomer
became contractually obligated to reimburse Boatmen's if it properly
honored a draw. See UCP 400, Art. 16.a. Had Bancomer refused to reimburse
Boatmen's for honoring a draw, we have little doubt that the Missouri long-
arm statute would confer personal jurisdiction over Bancomer in an action
by Boatmen's asserting breach of this contractual duty to reimburse.
But that does not resolve this case. Boatmen's dishonored Moog's
draw, In doing so, Boatmen's acted on its own behalf as confirming bank.
The letter of credit provided that draws could be presented only at
Boatmen's counter. Thus, when Moog instructed Boatmen's to present the
dishonored draw to Bancomer, Moog did not make an authorized draw under the
letter of credit. Rather, it asked that Bancomer, with CRG's permission,
waive the documentary
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discrepancies that caused Boatmen's to dishonor. In other words, Moog
sought relief outside the four corners of the letter of credit. That is
a recognized commercial practice, indeed, it is expressly referenced in the
latest revision of the UCP. See Uniform Customs and Practice for
Documentary Credits/1993 Revision, Art. 14.c., ICC Pub. 500. But Moog's
unilateral action in making this request directly to Bancomer, and Moog's
follow-up visit to Guadalajara seeking Bancomer's explanation for its
"dishonor," cannot be labeled the transacting of business by Bancomer in
Missouri. Not surprisingly, therefore, Moog has cited no prior case
supporting this contention.
In these circumstances, we agree with the district court's resolution
of the personal jurisdiction issue. Moog protected its interests under the
letter of credit when it obtained confirmation by Boatmen's, which then
became subject to suit in Missouri for wrongful dishonor. Bancomer as
foreign issuer took no action beyond securing a local confirming bank that
would subject it to the jurisdiction of the Missouri courts. It is more
consistent with fair play and the need for efficient international markets
to limit Moog in this lawsuit to its wrongful dishonor claim against
Boatmen's, which it has abandoned. The fact that Bancomer had previously
issued numerous commercial letters of credit naming various Missouri
beneficiaries to assist other export/import transactions does not, in our
view, alter the analysis. See Occidental Fire, 689 F. Supp. at 565 (seven
letters of credit); see generally Helicopteros Nacionales de Colombia, S.A.
v. Hall, 466 U.S. 408, 414-16 & n.9 (1984).3
3
A more difficult question would be whether Missouri courts
have personal jurisdiction over a foreign bank that issued a
commercial letter of credit payable at the counter of a Missouri
bank that is not a confirming bank. In that case, the foreign
issuer makes the final decision whether to pay in Missouri, and the
beneficiary has no one to sue for wrongful dishonor other than the
issuer. We express no view as to how this issue should be decided.
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C.
Finally, Moog argues that the district court erred in deciding the
personal jurisdiction issue before Bancomer responded to Moog's discovery
requests addressing that issue. In responding to Bancomer's motion to
dismiss, Moog did not ask the district court for leave to complete
jurisdictional discovery. Its discovery requests were served after the
motion to dismiss was briefed but before the district court ruled. When
the court ruled adversely, Moog cited the pending discovery requests in its
motion to reconsider without explaining how Bancomer's discovery responses
might affect the jurisdiction issue. We have examined the discovery
requests. Most relate to the merits of the lawsuit. Those seeking
disclosure of other letter of credit transactions involving Missouri
beneficiaries are immaterial given the array of transactions already
disclosed in the jurisdiction motion papers. In these circumstances, the
district court in declining Moog's tardy request for more discovery did not
commit a "gross abuse of discretion resulting in fundamental unfairness."
Lee v. Armontrout, 991 F.2d 487, 489 (8th Cir.) (standard of review), cert.
denied, 114 S. Ct. 209 (1993).
The judgment of the district court is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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