Leslie v. Lloyds of London ( 1996 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
______________________________
No. 95-20085
______________________________
CHARLES ROBERT LESLIE,
Plaintiff-Appellant/Cross-Appellee,
Versus
LLOYDS OF LONDON, also known as The Corporation of Lloyd's
also known as Lloyd's, also known as The Society of Lloyd's,
also known as The Committee of Lloyd's;
Defendant-Appellee/Cross-Appellant,
CHEMICAL BANK, INC.
Defendant-Appellee,
and
R. W. STURGE, also known as R. W. Sturge, Ltd.
Defendant.
_______________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
(CA-H-90-1907)
_______________________________________________________
May 07, 1996
Before LAY,* HIGGINBOTHAM and STEWART, Circuit Judges.
PER CURIAM:**
Charles Robert Leslie appeals the district court's denial of
*
Circuit Judge for the Eighth Circuit, sitting by designation.
**
Local Rule 47.5 provides: "The publication of opinions that
have no precedential value and merely decide particular cases on
the basis of well-settled principles of law imposes needless
expense on the public and burdens on the legal profession."
Pursuant to that rule, the Court has determined that this opinion
should not be published.
his motion for a preliminary injunction against Lloyds of London
("Lloyd's") from presenting for payment Leslie's irrevocable letter
of credit. Leslie urges that without a preliminary injunction, he
will suffer irreparable injury, and that the district court
erroneously required him to prove his claim of fraud in the
transaction. Lloyd's cross-appeals, arguing certain findings of
fact by the district court should be set aside because they address
matters that are inappropriate in a preliminary injunction context.
We affirm the judgment of the district court.
Facts
In 1976, Leslie was solicited for participation in an
investment contract to underwrite insurance risks through Lloyd's.
Participation required that Leslie apply and qualify for membership
in Lloyd's which required him to prove financial means and deposit
a specified sum by posting an irrevocable letter of credit in favor
of Lloyd's; thereafter, Leslie became a "Name." Each Name is
responsible for his or her share of a syndicate's losses, but
liability is unlimited for that share. Leslie's letter of credit
did not incorporate the terms of his agreement with Lloyd's,
instead requiring only a "certified statement signed by and [sic]
authorized official of the Committee of Lloyd's, London, England,
certifying that the amount of the accompanying draft is due under
the terms of Mr. C.R. Leslie's underwriting membership." Pl.'s Ex.
2. Leslie earned profits as a Name through the underwriting year
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1984, but thereafter has incurred substantial losses.
Leslie has refused to pay in regard to calls for losses from
various syndicates in which he has participated as a Name. He
filed a lawsuit against Lloyd's, claiming, among other things, that
he was fraudulently induced into investing in Lloyd's and that
Lloyd's misrepresented the scope of his potential liability.
Because of Leslie's refusal to pay, Lloyd's claims it has the
contractual right to draw down on his letter of credit and forward
the funds to the syndicates that have issued calls to Leslie.
Leslie filed a motion for a preliminary injunction against the
operation of the letter of credit. The district court denied the
motion, finding Leslie did not demonstrate that he will suffer
irreparable injury if the letter of credit is honored, and did not
establish that any fraud on the part of Lloyd's so vitiates his
entire transaction with Lloyd's such that he was denied any value
from his participation in the transaction. We have jurisdiction
under 28 U.S.C. § 1291(a)(1).
I. Injunctive Relief
A. Irreparable Harm
Leslie argues that without a preliminary injunction, Lloyd's
will be able to draw on the letter of credit, and he will be
irreparably injured because of Lloyd's financial condition that
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would limit, if not destroy, Leslie's ability to recoup even if he
obtained a judgment on the merits against Lloyd's.
A preliminary injunction is an extraordinary and drastic
remedy. Mississippi Power & Light Co. v. United Gas Pipe Line Co.,
760 F.2d 618, 621 (5th Cir. 1985). The decision to grant or deny
a preliminary injunction lies within the discretion of the district
court. Lakedreams v. Taylor, 932 F.2d 1103, 1107 (5th Cir. 1991).
Accordingly, such an order may be reversed on appeal only upon a
showing the district court abused its discretion. White v.
Carlucci, 862 F.2d 1209, 1211 (5th Cir. 1989). In order to obtain
a preliminary injunction, Leslie has the burden of proving four
elements: (1) a substantial likelihood of success on the merits;
(2) a substantial threat of irreparable injury if the injunction is
not issued; (3) that the threatened injury to Leslie outweighs any
damage the injunction might cause to Lloyd's; and (4) that the
injunction will not disserve the public interest. Atwood Turnkey
Drilling, Inc. v. Petroleo Brasileiro, S.A., 875 F.2d 1174, 1178
(5th Cir. 1989), cert. denied, 493 U.S. 1075 (1990). If the movant
fails on any one element, a preliminary injunction may not issue.
Thus, when the movant fails to prove that, absent the injunction,
irreparable injury will result, the preliminary injunction should
be denied. Enterprise Int'l, Inc. v. Corporacion Estatal Petrolera
Ecuatoriana, 762 F.2d 464, 472 (5th Cir. 1985); cf. Bonny v.
Society of Lloyd's, 3 F.3d 156, 160 n.11 (7th Cir. 1993)
(preliminary injunction denied pending litigation over forum
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selection clause), cert. denied, 114 S. Ct. 1057 (1994).
The general rule is that there can be no irreparable injury
where money damages would adequately compensate a plaintiff. See,
e.g., City of Meridian v. Algernon Blair, Inc., 721 F.2d 525, 529
(5th Cir. 1983). The record in this case is clear that only money
is at stake. While Leslie will suffer the immediate loss of money
if Lloyd's draws upon the letter of credit, the very purpose of the
letter of credit is to place the money in the beneficiary's hands
while "contractual disputes wend their way towards resolution."
Enterprise, 762 F.2d at 474 (quotation omitted). Moreover, as this
court noted in Enterprise, a case involving an international letter
of credit, "the requirements for preliminary injunctive relief,
including the showing of a substantial threat of irreparable injury
if the injunction is not issued, are to be strictly exacted so as
to avoid shifting the contractual allocation both of the risk of
loss and the burden of pursuing international litigation." Id. As
the district court found, such monetary loss alone does not
constitute irreparable harm sufficient to justify the issuance of
a preliminary injunction.
Nonetheless, Leslie contends his expert testimony shows that
Lloyd's financial situation is so precarious that he will never
recover any monies from Lloyd's if he ultimately prevails,
therefore, he is entitled to injunctive relief. See Roland Mach.
Co. v. Dresser Indus., Inc., 749 F.2d 380, 386 (7th Cir. 1984)
(stating that a damage remedy may be inadequate if a defendant may
become insolvent before a final judgment can be entered and
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collected). We disagree. The district court judge found the
testimony of Leslie's experts that Lloyd's liabilities might
preclude collection of any future judgment too speculative and
otherwise insufficient to satisfy Leslie's burden that no other
adequate remedy at law exists in lieu of the requested injunction.1
See Sampson v. Murray, 415 U.S. 61, 90 (1974) (noting that the
"possibility that adequate compensatory or other corrective relief
will be available at a later date . . . weighs heavily against a
claim of irreparable harm" (quotation omitted)). This finding will
be reversed only for clear error. Enterprise, 762 F.2d at 472.
Such is not the case here.
B. Fraud in the Transaction
Leslie next contends the district court erred by requiring him
to meet the same burden of proof he would face in a permanent
injunction hearing, rather than merely determining whether he
proved a substantial likelihood on the merits. Specifically,
Leslie contends the district court erroneously required proof of a
separate element of "fraud in the transaction." Leslie's argument
is unpersuasive.
The law surrounding presentment of letters of credit is well
settled in Texas. See, e.g., Philipp Bros., Inc. v. Oil Country
Specialists, Ltd., 787 S.W.2d 38, 40-41 (Tex. 1990). The
1
The record shows that even Leslie's experts testified
"Lloyd's will sail on into the future." Tran. at 160.
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obligation of the issuer bank to pay to the beneficiary upon
presentment of conforming documents is independent of the
underlying contractual relationship between customer and the
beneficiary. Republic Nat'l Bank v. Northwest Nat'l Bank, 578
S.W.2d 109, 114 (Tex. 1978). Under this doctrine of independence,
any contractual disputes between the customer and beneficiary are
not the concern of the issuer; when conforming documents are
presented, payment must be made. Tex. Bus. & Com. Code Ann.
§ 5.114(a). Presentment may not be enjoined unless there is a
showing by the customer of fraud by the beneficiary. Id.§ 5.114(b)(2). Fraud in the transaction is defined as "fraud in
which the wrong doing of the beneficiary has so vitiated the entire
transaction that the legitimate purposes of the independence of the
issuer's obligations would no longer be served." Philipp Bros.,
787 S.W.2d at 40 (quotation omitted). The underlying transaction
must have been a complete sham, from which no value was derived by
the customer and with no purpose other than obtaining the
customer's money through the letter of credit. See GATX Leasing
Corp. v. DBM Drilling Corp., 657 S.W.2d 178, 183 (Tex. Ct. App.
1983). Moreover, proof of actionable fraud does not, in and of
itself, necessarily justify an injunction. See Paris Sav. & Loan
Ass'n v. Walden, 730 S.W.2d 355, 365 (Tex. Ct. App. 1987) ("We do
not hold that there is no actionable fraud in either transaction.
We hold only that there is no `fraud in the transaction' of the
type required to fall within section 5.114(b).").
The district court found Leslie failed to show the type of
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fraud in the underlying transaction that would destroy the
legitimate purpose of the irrevocable letter of credit, noting he
is a sophisticated investor who knowingly undertook the risks
inherent in causing the issuance of a letter of credit in return
for the rewards of international business. See Enterprise, 762
F.2d at 474. Moreover, the district court concluded that while
Leslie has incurred losses as a Name, and may well incur further
losses, Leslie admitted he derived value and benefitted from his
membership in Lloyd's for eight years, both in earning overall
profits and in using profits from certain syndicates to offset
losses from unprofitable syndicates. Leslie v. Lloyd's, No. H-90-
1907, at 17 (S.D. Tex. Nov. 2, 1994) (order denying preliminary
injunction). Finally, while the district court determined Leslie's
evidence indicated potentially fraudulent actions by Lloyd's, the
evidence simply did not support a finding that Lloyd's did not
intend for Leslie to benefit at all from the transaction underlying
the letter of credit. Leslie therefore failed to establish
substantial likelihood of success in his action on the letter of
credit. Since Leslie failed to carry his burden on this element,
the district court did not abuse its discretion in rejecting
Leslie's claim for a preliminary injunction.
II. Preliminary Findings
Lloyd's asserts the district court abused its discretion by
making findings of fact that are inappropriate in the preliminary
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injunction context. While Lloyd's concedes the findings of fact
are neither law of the case nor collateral estoppel as to other
proceedings in United States courts, University of Texas v.
Camenisch, 451 U.S. 390, 395 (1981); Mylett v. Jeane, 910 F.2d 296,
299 (5th Cir. 1990), it nevertheless requests this Court to set
them aside out of fairness, contending that other courts may attach
undue significance to them.
Lloyd's request to set aside certain findings of fact would
reduce the findings to bare conclusions and eliminate their primary
function, which is to facilitate appellate review. Chandler v.
City of Dallas, 958 F.2d 85, 88 (5th Cir. 1992); see also Bose
Corp. v. Linear Design Labs, Inc., 467 F.2d 304, 311 (2d Cir. 1972)
(trial court's findings are of the highest importance to a proper
review granting or denying a preliminary injunction). Moreover, it
would be premature to set aside the district court's findings at
this stage of the proceedings. After Leslie brought this appeal,
the district court reconsidered the venue and forum selection
issues raised by Lloyd's and denied Lloyd's motion to dismiss,
confirming that Houston, Texas is a proper venue for this lawsuit
and that the forum selection clause in the underlying agreement is
unreasonable and unenforceable. Leslie v. Lloyd's, No. H-90-1907,
at 17 (S.D. Tex. Aug. 20, 1995) (order affirming, after
reconsideration, magistrate's memorandum & recommendation). The
district court certified its order for interlocutory appeal. In
the order, the court referenced the findings from the preliminary
injunction motion and indicated that those findings are to be
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considered as part of its ruling denying Lloyd's motion to dismiss.
Accordingly, the preliminary injunction findings will be necessary
for this Court to properly review the appeal, see Chaiffetz v.
Robertson Research Holding, Ltd., 798 F.2d 731, 734-35 (5th Cir.
1986) (noting the appellate court must know the basis for the
district court's conclusion), and thus we decline to set them
aside.
The judgment of the district court is AFFIRMED. Each party
shall pay its own costs.
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