Hendricks v. Bank of America

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DIANE M. HENDRICKS; KENNETH A. 

HENDRICKS,

Plaintiffs-Appellees,

v. No. 03-55754

BANK OF AMERICA, N.A.,

Defendant,  D.C. No.

CV-02-03150-GHK

and OPINION

MUTUAL INDEMNITY (BERMUDA),

LTD., a Bermuda corporation,

Defendant-Appellant.



Appeal from the United States District Court

for the Central District of California

George H. King, District Judge, Presiding

Argued and Submitted

January 14, 2004—San Francisco, California

Filed February 25, 2005

Before: J. Clifford Wallace, John T. Noonan, and

M. Margaret McKeown, Circuit Judges.

Opinion by Judge Wallace

2209

HENDRICKS v. BANK OF AMERICA 2213

COUNSEL

Vincent J. Connelly, Mayer, Brown, Rowe & Mawe, Chicago,

Illinois, for the defendant-appellant.

Bruce R. Meckler, Meckler Bulger & Tilson, Chicago, Illi-

nois, and Robert G. Campbell, Cox Castle & Nicholson LLP,

Los Angeles, California, for the plaintiffs-appellees.

OPINION

WALLACE, Senior Circuit Judge:

Mutual Indemnity (Bermuda), Ltd., the defendant in the

trial court (Mutual), appeals from a district court order enjoin-

ing co-defendant Bank of America, N.A. (Bank) from honor-

ing Mutual’s efforts to draw down on a letter of credit (LOC)

posted by Diane and Kenneth Hendricks, the trial court plain-

tiffs (the Hendricks). We have jurisdiction to review the dis-

trict court’s preliminary injunction order pursuant to 28

U.S.C. § 1292(a)(1), and we affirm.

I.

The Hendricks own American Patriot Insurance Agency,

Inc. (American Patriot), a company that specializes in provid-

ing insurance products to roofing contractors. In early 1997,

the Hendricks established a commercial insurance program

for workers compensation and other insurance coverages with

underwriting assistance from Mutual Risk Management and

its subsidiaries: Mutual, Legion Insurance Company, Com-

monwealth Risk Services, L.P., and Villanova Insurance

2214 HENDRICKS v. BANK OF AMERICA

Company (collectively, the Mutual Entities). Several contracts

govern the relationship between American Patriot and the

Mutual Entities, but only one is directly relevant here: a

“shareholder agreement,” which entitles the Hendricks to reap

certain profits and income generated by the commercial insur-

ance program and commits the Hendricks to indemnify

Mutual for losses on the program. The shareholder agreement

also requires the Hendricks to post irrevocable LOCs and

maintain the LOCs for the duration of Mutual’s outstanding

or potential liability for program losses.

In April 2001, the Hendricks filed an action in the Northern

District of Illinois “alleging fraud, misrepresentation, conspir-

acy, breach of contract, RICO violations and negligence aris-

ing out of” the Mutual Entities’ alleged fraudulent

mishandling of their underwriting and claims-handling prac-

tices from 1997 to 1999. Am. Patriot Ins. Agency, Inc. v. Mut.

Risk Mgmt., Ltd., 248 F. Supp. 2d 779, 781 (N.D. Ill. 2003).

The Mutual Entities moved to dismiss for lack of venue, cit-

ing the shareholder agreement’s forum selection clause, which

states: “This Agreement . . . shall be exclusively governed by

and construed in accordance with the laws of Bermuda and

any dispute concerning this Agreement shall be resolved

exclusively by the courts of Bermuda.” The district court

agreed that the forum selection clause precluded the Hen-

dricks’ Illinois action and granted the motion to dismiss. Id.

at 783-86. On appeal, the Seventh Circuit affirmed. See Am.

Patriot Ins. Agency, Inc. v. Mut. Risk Mgmt., Ltd., 364 F.3d

884 (7th Cir. 2004).

One day after filing their Illinois complaint, the Hendricks

brought an action in the Central District of California seeking

injunctive relief to prevent Mutual from drawing down on an

LOC in the possession of the Bank. The California complaint

listed both Mutual and the Bank as defendants and requested

a preliminary injunction based on California Commercial

Code section 5109(b), which provides that “[i]f an applicant

claims that . . . honor of the presentation would facilitate a

HENDRICKS v. BANK OF AMERICA 2215

material fraud by the beneficiary on the issuer or applicant, a

court of competent jurisdiction may temporarily or perma-

nently enjoin the issuer from honoring a presentation.” CAL.

COM. CODE § 5109(b).

The district court reviewed the Hendricks’ pleadings and

promptly issued a temporary restraining order against Mutual,

directing it to show cause why a preliminary injunction

should not be entered. After the Northern District of Illinois

filed its decision in the Illinois action, Mutual invoked collat-

eral estoppel and asked the district court to dissolve the tem-

porary restraining order and deny the Hendricks’ request for

injunctive relief. Following oral argument, the district court

determined that the Hendricks “ha[d] stated a claim for

interim relief against the Bank of America as the issuer of the

LOC . . . pursuant to . . . Section 5109.” The district court rea-

soned that collateral estoppel did not prevent the Hendricks

from seeking injunctive relief against the Bank, because the

Bank was not a party in the Illinois action against the Mutual

Entities. In addition, it concluded that Mutual was “not a nec-

essary, much less an indispensable, party to” that action

against the Bank. It therefore “stayed” the Hendricks’ claims

against Mutual and issued a “preliminary” injunction to

remain in effect “until the earlier of the following: (1) [f]inal

resolution of the merits of the underlying claims between

Plaintiffs and the Mutual Defendants in either the Illinois fed-

eral court or Bermuda; or (2) April 14, 2006.”

II.

Mutual does not challenge the district court’s decision to

stay indefinitely the Hendricks’ action against it individually.

Instead, it seeks to appeal from the portion of the district

court’s order that grants preliminary injunctive relief against

the co-defendant Bank. The Bank has chosen not to partici-

pate in Mutual’s appeal since it does not assert an independent

interest in the LOC. This raises an important threshold ques-

tion for our consideration: whether Mutual, a party to the

2216 HENDRICKS v. BANK OF AMERICA

Hendricks’ action and the LOC beneficiary, has standing to

appeal from the district court’s preliminary injunction order

against the Bank.

[1] We have held that a defendant may assert “standing to

contest the grant of the preliminary injunction issued against

. . . other defendants” under certain circumstances, “even

though those defendants have not appealed.” Goldie’s Book-

store, Inc. v. Superior Court, 739 F.2d 466, 468 n.2 (9th Cir.

1984). To meet our standing requirements for appeal, a defen-

dant must demonstrate that he or she was “a party at the time

judgment was entered and [was] aggrieved by the decision

being appealed.” Id.; see also In re Exxon Valdez, 239 F.3d

985, 987 (9th Cir. 2001) (concluding that a litigant had stand-

ing to appeal because it was “a party to this case from the

beginning” and “contends that it is aggrieved by the district

court’s order”). Mutual clearly satisfies these requirements

because it was both a party of record when the district court

entered its preliminary injunction and the intended beneficiary

of the enjoined LOC. See Lueker v. First Nat’l Bank of Boston

(Guernsey) Ltd., 82 F.3d 334, 337 (10th Cir. 1996) (observing

that an LOC beneficiary had standing to appeal from an

injunction entered against a co-defendant bank under similar

circumstances); Andy Marine, Inc. v. Zidell, Inc., 812 F.2d

534 (9th Cir. 1987) (exercising jurisdiction over an LOC ben-

eficiary’s appeal from a district court order, which enjoined

a bank from honoring the beneficiary’s draft).

The Hendricks also contend that Mutual lacks standing to

appeal because it steadfastly contested personal jurisdiction in

the Central District of California, but they cite no authority

which supports this argument. Were we to treat personal juris-

diction defenses under Federal Rule of Civil Procedure

12(b)(2) as waivers of appellate standing, we would essen-

tially immunize district courts’ personal jurisdiction determi-

nations from appellate scrutiny—an untenable proposition, to

be sure.

HENDRICKS v. BANK OF AMERICA 2217

We recognize, of course, that a nonparty generally cannot

simultaneously challenge personal jurisdiction and assert

standing to appeal. “The rule that only parties to a lawsuit, or

those that properly become parties, may appeal an adverse

judgment, is well settled.” Marino v. Ortiz, 484 U.S. 301, 304

(1988) (per curiam). For this reason, an interested LOC bene-

ficiary who “deliberately [chooses] to remain a nonparty”

lacks standing to appeal from a district court order which per-

manently enjoined a bank from making payment on the LOC.

Citibank Int’l v. Collier-Traino, Inc., 809 F.2d 1438, 1439-41

(9th Cir. 1987).

[2] However, Mutual was a party to the district court pro-

ceedings and was aggrieved by the preliminary injunction. It

therefore has standing to appeal the injunction. See Goldie’s

Bookstore, Inc., 739 F.2d at 468 n.2. We hold, therefore, that

Mutual has standing to appeal from the district court’s prelim-

inary injunction.

III.

Mutual raises essentially two procedural challenges to the

district court’s preliminary injunction: improper venue and

lack of personal jurisdiction over a necessary and indispens-

able party. See FED. R. CIV. P. 12(b)(3) (improper venue);

FED. R. CIV. P. 19(a)-(b) (necessary and indispensable party).

A.

[3] Before advancing to the merits of Mutual’s procedural

challenges, we must decide whether these issues are amenable

to appellate review at this stage. Under 28 U.S.C.

§ 1292(a)(1), we may exercise interlocutory appellate juris-

diction over the district court’s preliminary injunction and

pendent jurisdiction over any “otherwise non-appealable rul-

ing [that] is ‘inextricably intertwined’ with or ‘necessary to

ensure meaningful review of’ the order properly before us on

interlocutory appeal.” Meredith v. Oregon, 321 F.3d 807, 813

2218 HENDRICKS v. BANK OF AMERICA

(9th Cir. 2003) (quoting Swint v. Chambers County Comm’n,

514 U.S. 35, 51 (1995)), amended by 326 F.3d 1030 (9th Cir.

2003). District court rulings are “inextricably intertwined”

with a preliminary injunction when “the legal theories on

which the issues advance [are] . . . so intertwined that we

must decide the pendent issue in order to review the claims

properly raised on interlocutory appeal, or . . . resolution of

the issue properly raised on interlocutory appeal necessarily

resolves the pendent issue.” Meredith, 321 F.3d at 814, quot-

ing Cunningham v. Gates, 229 F.3d 1271, 1285 (9th Cir.

2000). We also construe Swint’s “necessary to ensure mean-

ingful review” language narrowly to “require[ ] much more

than a tangential relationship to the decision properly before

us on interlocutory appeal.” Poulos v. Caesar’s World, Inc.,

379 F.3d 654, 669 (9th Cir. 2004).

[4] The Hendricks contend that Mutual’s personal jurisdic-

tion and venue defenses are not “inextricably intertwined”

with the district court’s preliminary injunction. We need not

decide here whether their assertion is correct, because we con-

clude that “review of [these two defenses] is necessary to

ensure meaningful review of” the district court’s preliminary

injunction. Swint, 514 U.S. at 51.

In reaching this conclusion, we consider whether the issue

calls into question the district court’s “authority to rule on a

party’s motion for a preliminary injunction.” Meredith, 321

F.3d at 816 (emphasis added). For example, we have recog-

nized that it “is necessary” to decide subject matter jurisdic-

tion defenses “to ensure meaningful review of [a] district

court’s interlocutory rulings because if appellate courts lack

jurisdiction, they cannot review the merits of these properly

appealed rulings.” Id. (internal quotation marks omitted); see

also Wong v. United States, 373 F.3d 952, 960-61 (9th Cir.

2004) (discussing pendent jurisdiction over subject matter

jurisdiction issues). Similarly, we have invoked pendent juris-

diction under section 1292(a)(1) to decide whether a district

court lacked “authority to rule on a party’s motion for a pre-

HENDRICKS v. BANK OF AMERICA 2219

liminary injunction” because it was “required to abstain.”

Meredith, 321 F.3d at 816. On the other hand, we have

declined to exercise pendent jurisdiction over rulings such as

the availability of a Bivens remedy that were “not a logical

predicate to the” issues properly raised on appeal and did not

“implicate the very power of the district court to issue the rul-

ings on appeal.” Wong, 373 F.3d at 961. The common thread

running throughout these decisions is our recognition that sec-

tion 1292(a)(1) furnishes pendent jurisdiction over those

questions that implicate “the very power the district court

used to issue the rulings then under consideration.” Meredith,

321 F.3d at 816 (internal brackets omitted), quoting Merritt v.

Shuttle, Inc., 187 F.3d 263, 269 (2d Cir. 1999).

From these principles, it follows that we may exercise pen-

dent jurisdiction to review Mutual’s personal jurisdiction and

venue defenses under the particular circumstances of this

interlocutory appeal. Like the various rulings discussed in

Meredith, Mutual’s procedural defenses bear on the district

court’s power to issue the injunction, because the court would

lack authority to grant relief if (1) Mutual was a necessary and

indispensable party and immune from personal jurisdiction in

this forum, or (2) venue was improper because the forum-

selection clause precluded preliminary injunctive relief out-

side Bermuda. See Ruhrgas AG v. Marathon Oil Co., 526

U.S. 574, 584 (1999) (“Personal jurisdiction . . . is an essen-

tial element of the jurisdiction of a district court, without

which the court is powerless to proceed to an adjudication.”

(internal quotation marks and ellipsis omitted)).

[5] We recognize, of course, that we need not consider Rule

12 and Rule 19 defenses in every case “to ensure meaningful

review of” preliminary injunctions on interlocutory appeal.

Had Mutual waived the privilege to assert these defenses, for

instance, by failing to raise them “by motion” or “in a respon-

sive pleading,” we would lack pendent jurisdiction to review

them on interlocutory appeal. FED. R. CIV. P. 12(h); see also

Poulos, 379 F.3d at 672 (declining to review a district court’s

2220 HENDRICKS v. BANK OF AMERICA

exercise of personal jurisdiction because “the district court

would have retained jurisdiction . . . regardless of whether it

asserted personal jurisdiction over [a subgroup of] defen-

dants”). In this case, however, Mutual did not waive its venue

and personal jurisdiction defenses because it raised them in a

timely manner in its first responsive pleading after securing

several reasonable extensions of the filing deadline to facili-

tate settlement negotiations. See Fed. R. Civ. P. 12(h).

Because Mutual’s procedural defenses were properly raised,

and because they attacked the district court’s authority to

grant relief, the district court had to consider the defenses as

“a logical predicate to” its preliminary injunction order.

Wong, 373 F.3d at 961. We therefore exercise pendent juris-

diction over Mutual’s two procedural defenses pursuant to

section 1292(a)(1). Cf. In re Diet Drugs, 282 F.3d 220, 230

n.5 (3d Cir. 2002) (“We have pendent appellate jurisdiction

over the issue of personal jurisdiction, because, in this case,

that issue bears upon the propriety of the preliminary injunc-

tion.” (internal quotation marks and brackets omitted)).

B.

[6] Mutual contends that the district court should have dis-

missed the instant action pursuant to Federal Rule of Civil

Procedure 19(b) because Mutual was not subject to personal

jurisdiction in the Central District of California. Rule 19 pro-

vides that a court must dismiss a civil action if it lacks per-

sonal jurisdiction over any “necessary” and “indispensable”

party. FED. R. CIV. P. 19(a)-(b); Takeda v. Northwestern Nat’l

Life Ins. Co., 765 F.2d 815, 819 (9th Cir. 1985) (reviewing

this analysis). A party is “necessary” if “(1) in [its] absence

complete relief cannot be afforded among those already par-

ties, or (2) [it] claims an interest relating to the subject of the

action and is so situated that the disposition of the action in

[its] absence may (i) as a practical matter impair or impede

[its] ability to protect that interest, or (ii) leave any of the per-

sons already parties subject to a substantial risk of incurring

. . . inconsistent obligations.” FED. R. CIV. P. 19(a). Whether

HENDRICKS v. BANK OF AMERICA 2221

a party is “indispensable” is an equitable determination to be

decided based on a variety of factors, including:

first, to what extent a judgment rendered in the per-

son’s absence might be prejudicial to the person or

those already parties; second, the extent to which, by

protective provisions in the judgment, by the shaping

of relief, or other measures, the prejudice can be

lessened or avoided; third, whether a judgment ren-

dered in the person’s absence will be adequate;

fourth, whether the plaintiff will have an adequate

remedy if the action is dismissed for nonjoinder.

FED. R. CIV. P. 19(b). If Mutual is not a “necessary” and “in-

dispensable” party to the Hendricks’ request for injunctive

relief against the Bank, its argument for dismissal based on

personal jurisdiction fails.

Rule 19’s necessary and indispensable party “inquiry is a

practical, fact-specific one, designed to avoid the harsh results

of rigid application.” Dawavendewa v. Salt River Project

Agric. Improvement & Power Dist., 276 F.3d 1150, 1154 (9th

Cir. 2002). As such, we review the district court’s resolution

of this inquiry for an abuse of discretion. Kescoli v. Babbitt,

101 F.3d 1304, 1309 (9th Cir. 1996).

[7] The district court delivered “complete relief” to the

Hendricks without Mutual’s direct participation in the suit by

enjoining the Bank from honoring a draw on the LOC pend-

ing the outcome of litigation between the Hendricks and

Mutual in another forum. FED. R. CIV. P. 19(a)(1). Moreover,

the preliminary injunction does not “as a practical matter

impair or impede [Mutual’s] ability to protect [its] interest” in

the LOC or “leave any of the persons already parties subject

to a risk of incurring . . . inconsistent obligations” in another

forum. See FED. R. CIV. P. 19(a)(2). Instead, it merely pre-

serves the asset pending a final judgment on the merits in Ber-

muda. Thus, “as a practical matter,” the preliminary

2222 HENDRICKS v. BANK OF AMERICA

injunction does not “impede [Mutual’s] ability to protect that”

asset.1

[8] Having rejected Mutual’s challenge to the district

court’s “necessary” party analysis, we need not decide

whether “in equity and good conscience” Mutual qualifies as

an indispensable party under Rule 19(b). See United Food &

Commercial Workers Union v. Alpha Beta Co., 736 F.2d

1371, 1381 n.18a (9th Cir. 1984). Since Mutual has not dem-

onstrated that the district court lacked personal jurisdiction

over a “necessary” party to the Hendricks’ action, the district

court could grant injunctive relief against the Bank without

deciding whether it had personal jurisdiction over Mutual

individually.

C.

Mutual argues next that the shareholder agreement’s forum

selection clause required the district court to dismiss the Hen-

dricks’ action for improper venue. See Argueta v. Banco Mex-

icano, S.A., 87 F.3d 320, 324 (9th Cir. 1996) (holding that a

motion to dismiss based on a forum-selection clause should

be treated “as a Rule 12(b)(3) motion to dismiss for improper

venue.”). There is some ambiguity in the record as to whether

the district court actually reached Mutual’s improper venue

argument prior to issuing its preliminary injunction. After oral

argument, the court stated initially that it would “not at this

point decide . . . whether the forum selection clause is in fact

applicable [in] this case.” Later on, however, the court

returned to the venue question and reasoned that “to the extent

that [Mutual] may be making any argument with respect to

the forum selection clause or collateral estoppel, neither of

those arguments prevent us from issuing an injunction under

[section] 5109 against [the Bank] because we are making dif-

1

There was no abuse of discretion in the district court’s conclusion that

Mutual is not a “necessary” party to the Hendricks’ action for injunctive

relief against the Bank.

HENDRICKS v. BANK OF AMERICA 2223

ferent determinations of issues against a different party.” That

is, the district court held that the forum selection clause did

not preclude venue, insofar as it interpreted the clause not to

apply to the Hendricks’ section 5109 claim against the Bank,

which is a nonparty to the Shareholder Agreement. We need

not decide whether this interpretation was correct, because, as

explained later, we hold that the clause does not apply for dif-

ferent reasons. We review the district court’s decision not to

enforce the forum selection clause for an abuse of discretion.

See Kukje Hwajae Ins. Co. v. M/V Hyundai Liberty, 294 F.3d

1171, 1174 (9th Cir. 2002).

According to Mutual, the Seventh Circuit’s decision in

American Patriot Insurance Agency, Inc. v. Mutual Risk Man-

agement, Ltd., 364 F.3d 884 (7th Cir. 2004), compels the con-

clusion that venue was improper. That court held that the

shareholder agreement’s forum selection clause bars courts

outside Bermuda from adjudicating the Hendricks’ substan-

tive claims for fraud, breach of contract, and other claims. 364

F.3d at 888-90. This determination is dispositive here, Mutual

maintains, because “[c]ollateral estoppel, or issue preclusion,

bars the relitigation of issues actually adjudicated in previous

litigation between the same parties.” Offshore Sportswear,

Inc. v. Vuarnet Int’l, B.V., 114 F.3d 848, 850 (9th Cir. 1997).

By definition, collateral estoppel does not foreclose our

independent consideration of a district court’s venue determi-

nation unless “the issue at stake” in the instant litigation is

“identical to” an issue “alleged” and “actually litigated in the

prior litigation.” Id. The venue issues under consideration

here do not meet this test. In the Illinois action, the Hendricks

sought a final judgment on the merits of their dispute with the

Mutual Entities, so the Seventh Circuit had no occasion to

consider the precise venue question posed in this case:

whether the shareholder agreement’s forum selection clause

prevents courts outside Bermuda from issuing temporary

injunctions to secure assets pending a final judgment on the

merits in Bermuda. Collateral estoppel might preclude the

2224 HENDRICKS v. BANK OF AMERICA

Hendricks from bringing a common law fraud or misrepresen-

tation action in the Central District of California. However,

that is different from the Hendricks seeking temporary injunc-

tive relief in this forum to preserve an asset, which was not

an issue “actually adjudicated in the” Illinois case. Id.

Turning to the merits of Mutual’s improper venue defense,

we presume that the shareholder agreement’s forum selection

clause is prima facie valid and enforceable unless the Hen-

dricks can show that enforcement would be “ ‘unreasonable’

under the circumstances.” Bremen v. Zapata Off-Shore Co.,

407 U.S. 1, 10 (1972); see also Arguenta, 87 F.3d at 325

(“Although Bremen is an admiralty case, its standard has been

widely applied to forum selection clauses in general.”). To the

extent the forum selection clause applies here, the Hendricks

have the burden “ ‘to show that trial in the contractual forum

would be so gravely difficult and inconvenient that [they] will

for all practical purposes be deprived of [their] day in court.’ ”

Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 515

(9th Cir. 1988), quoting Bremen, 407 U.S. at 18.

[9] The question presented here is significantly different,

however, from the typical forum selection clause case. The

Hendricks do not dispute the forum selection clause’s valid-

ity, nor do they contest the Seventh Circuit’s determination

that the clause is enforceable where applicable; instead, they

contend that the clause’s scope does not extend to actions

designed to preserve assets pending a judgment on the merits

in the contractually selected forum. Whether the Hendricks

must secure a preliminary injunction in Bermuda to preserve

this asset or may claim protection under the California statute

is a question of first impression in our circuit. However, our

reasoning in an analogous admiralty case, Polar Shipping,

Ltd. v. Oriental Shipping Corp., 680 F.2d 627 (9th Cir. 1982),

is instructive:

It is clear from The Bremen and its Ninth Circuit

progeny that where there is an enforceable foreign

HENDRICKS v. BANK OF AMERICA 2225

court selection clause, dismissal of the action is gen-

erally appropriate. However neither the Supreme

Court in The Bremen, nor this court, has addressed

the issue of whether . . . the district court, instead of

unconstitutionally dismissing the action, may ensure

the availability of security pending a determination

of the merits in the contractually selected forum. . . .

The enforceability of foreign court selection clauses

is a matter of judicially-created contract law. The

question, then, is, what does the contract permit or

require? Does it permit attachment in another forum,

and maintenance of the attachment pending decision

in the contractually selected forum? . . .

It is clear . . . that the parties intended that they

would litigate the merits of any dispute . . . in

[another] forum. There is, however, no indication . . .

that the parties intended to limit proceedings to

obtain prejudgment security to that forum. . . .

We hold that in an admiralty action, absent express

intent to the contrary, a forum selection clause pro-

viding that all disputes under the charter will be

determined by a selected foreign court neither pre-

cludes a plaintiff from commencing an action in the

district court to obtain security by maritime attach-

ment, nor prohibits the district court from ensuring

the availability of security adequate to satisfy a

favorable judgment by the selected forum.

Id. at 631-33 (internal citations omitted).

[10] Although we cautiously confined Polar Shipping’s

holding to admiralty actions, there is no compelling reason

why the analysis developed in that case should not apply to

temporary injunctions issued under section 5109(b). In both

Polar Shipping and the instant case, “[t]he enforceability of

2226 HENDRICKS v. BANK OF AMERICA

foreign court selection clauses is a matter of judicially-created

contract law,” meaning that “the intent of the parties governs

the extent to which [the district court] may exercise its juris-

diction” to preserve assets pending a judgment in the contrac-

tually designated forum. Polar Shipping, 680 F.2d at 632; see

also Bremen, 407 U.S. at 12 (rejecting the argument that

forum selection clauses “oust” a district court of jurisdiction,

and describing the proper inquiry as “whether [the] court

should have exercised its jurisdiction to do more than give

effect to the legitimate expectation of the parties”).

In this case, the forum selection clause manifests the par-

ties’ consensus to litigate the merits of “any dispute concern-

ing [the Shareholder] Agreement” in Bermuda. But the case

before us is not about the agreement itself or its validity. On

the contrary, there is “no indication from either the [agree-

ment] or the record, that [the parties] intended to limit pro-

ceedings to obtain prejudgment security to that forum. If the

parties had so intended they could easily have worded [the

forum selection clause] to so provide. They did not do so.”

Polar Shipping, 680 F.2d at 632; see also Gregorio T. v. Wil-

son, 59 F.3d 1002, 1004 (9th Cir. 1995) (observing that in

granting a preliminary injunction “we do not review the

underlying merits of the case”).

[11] Since Mutual has not shown from the language of the

shareholders agreement or presented any evidence that the

parties intended to limit actions outside Bermuda for prejudg-

ment injunctive relief, the district court did not abuse its dis-

cretion by concluding that the Central District of California

was an appropriate venue for the Hendricks’ action under sec-

tion 5109(b) to preserve the LOC. We hold that the district

court did not abuse its discretion in denying Mutual’s motion

to dismiss the Hendricks’ action for improper venue.

IV.

Mutual did not address the merits of the injunction in its

pleadings filed in district court because of counsel’s fear that

HENDRICKS v. BANK OF AMERICA 2227

challenging the fraud allegations would have submitted

Mutual to its jurisdiction. At the oral argument, Mutual did

make passing reference to the merits. Although Mutual argu-

ably waived its challenge to the merits, as the question is a

close one, we address the merits of Mutual’s appeal on this

point.

With these procedural hurdles behind us, we turn at last to

the merits of the district court’s preliminary injunction. “Our

review is limited and deferential.” Southwest Voter Registra-

tion Educ. Project v. Shelley, 344 F.3d 914, 918 (9th Cir.

2003) (en banc). We must affirm the injunction “unless the

district court (1) abused its discretion or (2) based its discre-

tion on an erroneous legal standard or on clearly erroneous

findings of fact.” Satava v. Lowry, 323 F.3d 805, 810 (9th Cir.

2003).

A.

Mutual argues that the district court’s preliminary injunc-

tion was inappropriate because the Hendricks’ action does not

anticipate a final judgment on the merits in the Central Dis-

trict of California. Pursuant to Federal Rule of Civil Proce-

dure 64, “all remedies providing for seizure of person or

property for the purpose of securing satisfaction of the judg-

ment ultimately to be entered in the action are available under

the circumstances and in the manner provided by the law of

the state in which the district court is held.” Thus, we look to

California law to determine whether the district court could

grant a preliminary injunction even though final resolution of

the underlying fraud claim would not occur in that court.

[12] California law expressly allows “a court of competent

jurisdiction [to] temporarily . . . enjoin” a bank from honoring

a letter of credit “or grant similar relief” if the plaintiff claims

that honor would “facilitate a material fraud” by the benefi-

ciary on the plaintiff and certain requirements are satisfied.

CAL. COM. CODE § 5109(b). The statute contains no require-

2228 HENDRICKS v. BANK OF AMERICA

ment that final resolution of the merits must occur in the same

court that grants the “temporar[y]” or “similar” relief.

Although the district court used the word “preliminary” in

describing the injunction, section 5109(b) permits “temporar-

[y]” injunctions and also allows a court to “grant similar

relief.” The district court could just as well have entered a

“temporary” injunction rather than a “preliminary” injunction.

We conclude that the power to do so is not determined by

which of the two designations the district court uses. In the

case before us, it is obviously a form of relief expressly autho-

rized by the state statute. The district court had authority to

grant the interim relief pursuant to section 5109.

B.

The final issue presented for our review is the district

court’s application of the discrete legal standards for injunc-

tive relief. The district court granted the Hendricks’ complaint

for injunctive relief because it found “there [was a] sufficient

showing of likelihood of success on the merits of [their] claim

of material fraud” and that there was “certainly a possibility

of irreparable injury inasmuch as once released, the money is

likely . . . to be dissipated in light of [Mutual’s] questionable

financial circumstances.” We review this determination for an

abuse of discretion. Gorbach v. Reno, 219 F.3d 1087, 1091

(9th Cir. 2000) (en banc).

1.

[13] Because the district court issued its order pursuant to

section 5109, we evaluate Mutual’s likelihood of success

according to section 5109’s standard:

If an applicant claims that a required document is

forged or materially fraudulent or that honor of the

presentation would facilitate a material fraud by the

beneficiary on the issuer or applicant, a court of

competent jurisdiction may temporarily . . . enjoin

HENDRICKS v. BANK OF AMERICA 2229

the issuer from honoring a presentation or grant sim-

ilar relief against the issuer or other persons only if

the court finds that: . . . on the basis of the informa-

tion submitted to the court, the applicant is more

likely than not to succeed under its claim of . . .

material fraud . . . .

CAL. COM. CODE § 5109(b) (emphasis supplied). Put differ-

ently, this provision authorizes the district court to grant

injunctive relief only if the record shows that allowing Mutual

to draw down on the LOC “more likely than not” would facil-

itate a material fraud by Mutual.

The district court concluded that the Hendricks established

a sufficient probability of success on the merits, because they

established a prima facie case of fraud, which Mutual did not

challenge in its opposition to the court’s order to show cause.

The court cited the uncontroverted affidavit of Eric Bossard,

a former Legion Insurance Company executive, which

revealed that the Mutual Entities systematically under-

reserved claims and misrepresented the extent of the Hen-

dricks’ liability for program losses. Whether the Hendricks

originally posted their LOC in reliance on these fraudulent

representations does not render the fraud immaterial, as

Mutual alleges, because the Hendricks submitted affidavit tes-

timony that they maintained the LOC with the Bank—and

thereby exposed themselves to even greater losses—in reli-

ance on the Mutual Entities’ representations. As the district

court recognized, allowing Mutual to draw on the LOC could

“facilitate a material fraud” by aggravating the Hendricks’

loss if Mutual turns out to be insolvent and, hence, judgment-

proof. CAL. COM. CODE § 5109(b).

[14] Mutual contends that the Bossard affidavit only estab-

lishes misrepresentations by employees of Mutual Entities

other than Mutual, the LOC beneficiary. This distinction

between Mutual and the other Mutual Entities is irrelevant for

present purposes, because the Bossard affidavit also states

2230 HENDRICKS v. BANK OF AMERICA

that the Mutual Entities were “acting as one in the marketing

and implementation of” the Hendricks’ insurance program;

fraudulent statements by these employees were part of a coor-

dinated fraud scheme in which Mutual played a key role.

Mutual’s intimate involvement in this scheme is evidenced by

its President’s signature on the letter agreement which formal-

ized the parties’ reinsurance arrangement, and its acceptance

of payment for the “phantom” reinsurance. Given this unop-

posed evidence of Mutual’s participation in the Mutual Enti-

ties’ fraud scheme, the district court did not abuse its

discretion by concluding the “likelihood of success” require-

ment was satisfied.

2.

[15] Section 5109(b) does not incorporate the common law

irreparable injury requirement. However, some federal and

state courts have applied this standard to suits for injunctive

relief under U.C.C. section 5-109. See, e.g., Interco, Inc. v.

First Nat’l Bank of Boston, 560 F.2d 480 (1st Cir. 1977)

(requiring a showing of “irreparable harm and inadequacy of

legal remedies” for injunctive relief under Massachusetts

General Laws chapter 106, section 5-109 (quoting Beacon

Theaters, Inc. v. Westover, 359 U.S. 500, 506-07 (1959)); In

re Commco Tech., L.L.C., 258 B.R. 63, 64-65 (Bankr. D.

Conn. 2001) (explaining that a plaintiff must make a showing

of irreparable harm to qualify for a preliminary injunction

under Minnesota Statute section 336.5-109 (2000)).

We need not decide whether there is an irreparable injury

requirement for issuance of an injunction because the Hen-

dricks contend that their risk of irreparable harm is “virtually

self-evident,” and their argument is persuasive. They assert

that Mutual and the other Mutual Entities are “in serious

financial straits” and would likely dissipate the LOC funds

before the Hendricks could obtain a judgment on the merits

in Bermuda. The district court agreed with this assessment of

Mutual’s financial circumstances.

HENDRICKS v. BANK OF AMERICA 2231

The Hendricks submitted several documents from which

the district court could reasonably conclude that Mutual’s ten-

uous financial circumstances would imperil the Hendricks’

ability to recoup assets drawn from the LOC. Two of these

documents are particularly important: (1) an affidavit of Wil-

liam Taylor, a Pennsylvania state deputy insurance commis-

sioner overseeing the rehabilitation of two of the Mutual

Entities; and (2) an unpublished disposition dated Novem-

ber 25, 2002 from the Commonwealth Court of Pennsylvania

relating to the rehabilitation proceedings. These records are to

the effect that as recently as December 23, 2002—just four

months before the district court entered its preliminary

injunction—Mutual “conceded in its public statements and its

filings that it [was] insolvent.” Taylor’s affidavit specifically

describes a “letter . . . sent by David Ezekiel on behalf of

[Mutual] ‘to all Scheme Creditors,’ ” which “stated that ‘the

Company has suffered losses over the past 18-24 months

which have resulted in the Company becoming insolvent.’ ”

In its findings of fact, the Commonwealth Court of Pennsyl-

vania found there was a possibility that Mutual faced “an

uncertain prospect of whether [it could] honor [its] contractual

obligations to pay dividends” and, if such payments could not

be made, it “may face involuntary insolvency proceedings.”

Mutual did not submit any evidence to demonstrate that its

financial circumstances have improved since December 2002.

We hold, therefore, that the district court did not abuse its dis-

cretion by concluding that the Hendricks would face a signifi-

cant threat of irreparable injury if a preliminary injunction did

not issue to prevent the Bank from honoring Mutual’s draw.

See In re Estate of Ferdinand Marcos, 25 F.3d 1467, 1480

(9th Cir. 1994) (“[A] district court has authority to issue a pre-

liminary injunction where the plaintiffs can establish that

money damages will be an inadequate remedy due to impend-

ing insolvency of the defendant . . . .”).

In a supplemental paper submitted after oral argument pur-

suant to Rule 28(j) of the Federal Rules of Appellate Proce-

dure, Mutual contended that a recent unpublished decision of

2232 HENDRICKS v. BANK OF AMERICA

the Sixth Circuit arising out of related litigation “supports

Mutual Indemnity’s argument in this court that the district

court’s injunction should be reversed.” That decision, Hen-

dricks v. Comerica Bank, No. 03-1952, 2004 WL 2940879

(6th Cir. Dec. 20, 2004), reversed an injunction granted by the

Eastern District of Michigan preventing a bank from honoring

Mutual’s draws against letters of credit obtained by the Hen-

dricks, because the Hendricks had “failed as a matter of law

to show irreparable harm.” Id. at *1. The Sixth Circuit rea-

soned that “other courts have denied injunctions in cases in

which it was unlikely that any foreign court could hear the

underlying claim,” and that “the chance that Mutual Indem-

nity is or will become bankrupt and will not be able to satisfy

a judgment obtained against it presents less threat of irrepara-

ble harm than the chance that there will not even be a pro-

ceeding available in which to obtain that judgment.” Id. at *5.

In other words, the Sixth Circuit held that a showing of a ben-

eficiary’s insolvency is insufficient as a matter of law to

obtain an injunction preventing a bank from honoring the ben-

eficiary’s draw on an international letter of credit.

We need not and do not decide whether to adopt the Sixth

Circuit’s holding. Mutual did not argue in this court that evi-

dence of its insolvency could not establish irreparable injury;

rather, Mutual argued that “[i]njunctive relief is unwarranted

when the plaintiff has . . . not demonstrated that the defen-

dants cannot pay a judgment that might be entered on the

plaintiff’s underlying claims,” and that “[t]here is no evidence

. . . that [Mutual] is or [is] about to be insolvent.” That is,

instead of arguing that it was irrelevant whether or not Mutual

was insolvent, Mutual contended that the Hendricks simply

had made no such showing. Since Mutual did not argue that

a showing of insolvency could not establish the requisite

irreparable harm, we decline to consider that argument now.

See Int’l Union of Bricklayers v. Martin Jaska, Inc., 752 F.2d

1401, 1404 (9th Cir. 1985) (“[W]e will not ordinarily consider

matters on appeal that are not specifically and distinctly raised

and argued in appellant’s opening brief.”). In addition, we

HENDRICKS v. BANK OF AMERICA 2233

also do not consider whether the Sixth Circuit’s decision is

binding here as a mater of collateral estoppel, law of the case,

or any other doctrine, because Mutual has made no such argu-

ment.

V.

As Mutual has not shown that the district court “abused its

discretion” or “based its discretion on an erroneous legal stan-

dard or on clearly erroneous findings of fact,” Satava, 323

F.3d at 810, we affirm the district court’s preliminary injunc-

tion.

AFFIRMED.