                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 04a0179n.06
                           Filed: December 20, 2004

                                           No. 03-1952

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT


DIANE M. HENDRICKS; KENNETH A.                   )
HENDRICKS,                                       )
                                                 )
       Plaintiffs-Appellees,                     )
                                                 )
v.                                               )   ON APPEAL FROM THE UNITED
                                                 )   STATES DISTRICT COURT FOR THE
COMERICA BANK, a National Banking                )   EASTERN DISTRICT OF MICHIGAN
Corporation; BANK OF AMERICA, N.A.,              )
a National Banking Corporation;                  )
                                                 )
       Defendants,                               )
                                                 )
MUTUAL INDEMNITY (BERMUDA),                      )
LTD., a Bermuda Corporation,                     )
                                                 )
       Defendant-Appellant.                      )




       Before: Siler, Batchelder, and Rogers, Circuit Judges.


       Rogers, Circuit Judge.      Mutual Indemnity (Bermuda), Ltd. appeals from the district

court’s grant of a preliminary injunction which prevents Comerica Bank from honoring Mutual

Indemnity’s draws against letters of credit (“LOCs”) obtained by plaintiffs Diane and Kenneth

Hendricks. Because the plaintiffs failed as a matter of law to show irreparable harm, we vacate the

preliminary injunction.
No. 03-1952
Hendricks v. Comerica Bank

                                                I.


       In 1997, Diane and Kenneth Hendricks, owners of American Patriot Insurance Agency, set

up the Roofers’ Advantage Program, through which American Patriot could provide general

liability, worker’s compensation, and automobile liability insurance to roofing contractors through

a single policy. The Roofers’ Advantage policies were underwritten by a “Rent-A-Captive”

program. In this case, American Patriot’s program was totally underwritten by Legion Insurance

Company. The complete details of this rent-a-captive scheme are not relevant to this appeal, but,

by way of a general summary, Legion would receive the premiums, retain 10% for itself and transfer

the remaining 90% to Mutual Indemnity. From the retained 10%, Legion would pay claims and

expenses from the given year until that amount was exhausted. Mutual Indemnity was responsible

for reinsuring claims exceeding this amount, but American Patriot was required to indemnify Mutual

Indemnity for any losses exceeding the premium it received. The agreement was subsequently

amended to place the indemnification liability on the Hendrickses personally, rather than on the

company.    The Hendrickses secured their obligation to indemnify Mutual Indemnity with

irrevocable letters of credit. Legion obtained non-captive reinsurance for losses that exceeded the

total premium generated.


       Roofers’ Advantage never turned a profit, however, and suffered massive losses.

Cunningham-Lindsey, the company Legion retained to handle its claims, apparently had under-

reserved the claims. The Hendrickses anticipated that Cunningham-Linsdey’s claims handling

problems would cause Legion to increase the premiums and make it more difficult to underwrite

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Hendricks v. Comerica Bank

policies. Because of these difficulties, Diane Hendricks met with the insurance companies to discuss

whether it was appropriate to renew the program for another year.


       Mrs. Hendricks and Lysa Saran, at the time chief operating officer of American Patriot, met

with Eric Bossard, at the time a vice president at Legion, and James Agnew, a vice president at

Commonwealth Risk, to discuss the future of the program. Mrs. Hendricks was particularly

interested in her and her husband’s potential liability for continued losses beyond the maximum

Mutual Indemnity would pay in reinsurance. Bossard and Agnew indicated that they were unsure

but that they would find out.


       According to Bossard, he and Agnew met with officers of the affiliated insurance companies

to discuss whether and to what degree the Hendrickses were personally liable for losses above

Mutual Indemnity’s limit.       Bossard explains that, on learning that Legion—and not the

Hendrickses—were responsible for those losses, Glenn Partridge, Executive Vice President of

Legion, and Richard Turner, President of Commonwealth Risk, instructed Bossard and Agnew to

tell the Hendrickses that they actually were personally liable for those losses. Bossard was instructed

to tell the Hendrickses that in exchange for payment, Legion or Mutual Indemnity could obtain

additional reinsurance to cap the Hendricks’ potential liability. Thus, under Bossard’s account,

Legion and Mutual Indemnity were asking the Hendrickses to pay for additional insurance to cover

losses that were not the responsibility of the Hendrickses, but rather were the responsibility of

Legion. The Hendrickses agreed to pay Mutual Indemnity $1,000,000 for the additional reinsurance

based on Bossard’s statement.

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No. 03-1952
Hendricks v. Comerica Bank

       The primary document setting out the terms of the parties’ obligations was the Shareholder

Agreement, between Mutual Indemnity Holdings (Bermuda), Ltd., an entity related to Mutual

Indemnity, and American Patriot. This agreement contains a forum-selection clause stating that

“[t]his Agreement has been made and executed in Bermuda and 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 Hendrickses, however, claiming fraud,

instituted an action in the Northern District of Illinois against Mutual Indemnity and other related

entities. Simultaneously, the Hendrickses filed actions in the Eastern District of Michigan and the

Central District of California in which they sought to enjoin the banks which held the letters of

credit from honoring any attempts by Mutual Indemnity to draw on the LOCs. In Michigan and

California the Hendrickses sought only injunctions; they did not sue Mutual Indemnity for fraud in

those venues. The Central District of California and the Eastern District of Michigan quickly issued

temporary restraining orders (“TRO”) and ordered the parties to appear at preliminary injunction

hearings.


       The parties attempted to settle the case and Mutual Indemnity allowed the Hendrickses to

audit the rent-a-captive program, but after eight months of talks, the settlement negotiations broke

down. Once the negotiations ended, Mutual Indemnity sued the Hendrickses in Bermuda and moved

to dismiss the three American lawsuits on jurisdictional and venue-based grounds. Acting first,

Judge Ruben Castillo of the Northern District of Illinois dismissed the lawsuit in that district,

holding that the forum-selection clause in the shareholder agreement required the Hendrickses to



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No. 03-1952
Hendricks v. Comerica Bank

pursue their claims against Mutual Indemnity in Bermuda. Judge Castillo noted that the Hendrickses

never argued that they were fraudulently induced into accepting the forum-selection clause or that

the clause was the product of unequal bargaining power, but that the Hendrickses simply argued that

they would be denied their day in court if forced to litigate in Bermuda because Bermuda’s

bankruptcy laws were favorable to Mutual Indemnity. Judge Castillo explained that he was

“unconvinced that Plaintiffs have no recourse against the Scheme [of Bankruptcy] in its present form

such that they will be unable to litigate their claims in Bermuda and thus be deprived of their day

in court if we enforce the forum selection clause.”


       A little less than two months later, however, Judge George King of the Central District of

California granted the Hendrickses’ request for a preliminary injunction. Without reaching the issue

of whether the court had personal jurisdiction over Mutual Indemnity or whether venue was proper,

Judge King concluded that he did have jurisdiction to enjoin the Bank of America from honoring

draws against the letters of credit. Judge King further explained that the Hendrickses were likely

to succeed in establishing material fraud and that they would suffer irreparable injury without an

injunction because of Mutual Indemnity’s “questionable financial circumstances.”


       Judge John O’Meara of the Eastern District of Michigan considered the Hendrickses’ request

for a preliminary injunction last. Judge O’Meara heard oral argument on the motion, and indicated

that he was inclined to follow Judge King’s ruling, but did not state any conclusions of law on the

record and did not make a ruling on the motion. Nearly a month later, Judge O’Meara issued a

written ruling, granting the preliminary injunction “for the reasons stated on the record at the hearing

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No. 03-1952
Hendricks v. Comerica Bank

held before this Court . . . and adopting as applicable to this matter the findings of fact and

conclusions of law” contained in the transcript and ruling in the California case. In addition, Judge

O’Meara ordered that the injunction would be dissolved if the plaintiffs either failed to prosecute

their Seventh Circuit appeal diligently, or, in the event of an unsuccessful appeal, failed to

commence an action in Bermuda within thirty (30) days on the same claims as the original Illinois

action. On April 16, 2004, the Seventh Circuit affirmed the decision of Judge Castillo of the

Northern District of Illinois dismissing the plaintiffs’ case with regard to Mutual Indemnity, among

others. On May 13, 2004, the Seventh Circuit denied the plaintiffs’ petitions for rehearing and

rehearing en banc. On June 16, 2004, the Hendrickses instituted an action against Mutual Indemnity

and other related entities in Bermuda.


                                                 II.


       We determine that Mutual Indemnity has standing to appeal the injunction issued by Judge

O’Meara against Comerica Bank, even though Mutual Indemnity was not itself enjoined. The

Supreme Court has held that “only parties to a lawsuit, or those that properly become parties, may

appeal an adverse judgment.” Marino v. Ortiz, 484 U.S. 301, 304 (1988). Although Mutual

Indemnity was not enjoined, it is a named defendant in this action. Furthermore, the injunction is

clearly an adverse judgment, because it prevents Comerica from honoring Mutual Indemnity’s draw

against the letter of credit, and thus deprives Mutual Indemnity of access to the funds. “‘[S]tanding

to appeal is recognized if the appellant can show an adverse effect of the judgment, and denied if

no adverse effect can be shown.’” Ass’n of Banks in Ins., Inc. v. Duryee, 270 F.3d 397, 403 (6th Cir.

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No. 03-1952
Hendricks v. Comerica Bank

2001) (quoting 15A Charles A. Wright et al., Federal Practice and Procedure: § 3902 (2d ed. 1992)).

The Hendrickses contend that just as certain nonparties may not appeal unless they have intervened,

see, e.g., Wilkenson v. Hercules Engines, Inc., 138 F.3d 608, 611 (6th Cir. 1998), named parties who

contest personal jurisdiction should not be permitted to appeal. The Hendrickses have not,

however, provided any authority for denying standing to a named party. Accordingly, Mutual

Indemnity has standing to appeal, and we proceed to consider the issuance of the injunction.


       Turning to the merits of the appeal, we conclude that the preliminary injunction must be

reversed for failure of the plaintiffs to demonstrate irreparable injury. This court reviews a lower

court’s decision to grant a preliminary injunction for abuse of discretion. Nat’l Hockey League

Players’ Ass’n v. Plymouth Whalers Hockey Club, 325 F.3d 712, 717 (6th Cir. 2003). Abuse of

discretion can be found when the district court “improperly applie[s] the governing law, or use[s]

an erroneous legal standard.” Id.


       There are four factors to be considered when issuing a preliminary injunction:


       (1) whether the movant has shown a strong likelihood of success on the merits; (2)
       whether the movant will suffer irreparable harm if the injunction is not issued; (3)
       whether the issuance of the injunction would cause substantial harm to others; and
       (4) whether the public interest would be served by issuing the injunction.


Overstreet v. Lexington-Fayette Urban County Gov’t, 305 F.3d 566, 573 (6th Cir. 2002). The factor

at issue here is irreparable harm. Judge King, and therefore through adoption Judge O’Meara, held

that “there is also certainly a possibility of irreparable injury inasmuch as once released, the money



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No. 03-1952
Hendricks v. Comerica Bank

is likely as alleged to be dissipated in light of the questionable financial circumstances of the Mutual

entity.” The district court improperly issued a preliminary injunction preventing Comerica from

honoring Mutual Indemnity’s draw on the letter of credit, because, in the context of international

letters of credit, the Hendrickses as a matter of law have not shown irreparable harm.

       “A preliminary injunction is an extraordinary remedy which should be granted only if the

movant carries his or her burden of proving that the circumstances clearly demand it.” Overstreet,

305 F.3d at 573. In the context of an international letter of credit, there are particular concerns that

make the issuance of a preliminary injunction even more extraordinary, and which accordingly

require a clearer demonstration of exceptional circumstances. Although this court has not fully

addressed the interplay between preliminary injunctions and international letters of credit, several

other circuits have usefully laid out the relevant considerations. In particular, the approach of the

Fifth Circuit in Enterprise International, Inc. v. Corporacion Estatal Petrolera Ecuatoriana, 762

F.2d 464 (5th Cir. 1985), has been widely adopted. See, e.g., Trans Meridian Trading Inc. v.

Empresa Nacional de Comercializacion de Insumos, 829 F.2d 949, 956 (9th Cir. 1987); Foxboro

Co. v. Arabian American Oil Co., 805 F.2d 34, 37 (1st Cir. 1986); Fluor Daniel Argentina, Inc. v.

ANZ Bank, 13 F. Supp. 2d 562, 565 (S.D.N.Y. 1998). In Enterprise International, the Fifth Circuit

first discussed the general principle that an injury is not “irreparable” unless “it cannot be undone

through monetary remedies.” 762 F.2d at 472 (internal quotation omitted). The court noted that this

principle results in courts’ refusing to enjoin the honoring of international letters of credit, because

monetary loss is the only alleged harm. See id. at 473. The exceptions, the court noted, occurred

in cases in which it was clear that the moving party would have no legal remedies at all, such as in

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No. 03-1952
Hendricks v. Comerica Bank

cases involving litigation in Iran immediately following the 1979 revolution and the taking of

American hostages. Id. The fact that the prospect of relief in a foreign court is speculative is not

enough to constitute a showing of irreparable harm. Id.

       The Fifth Circuit went on to explain that

       [t]his reluctance to grant preliminary injunctive relief in international letter of credit
       cases is well founded in policy and business practice as well as in equity. The
       obligations created by a letter of credit are completely separate from the underlying
       transaction, with absolutely no consequence given the underlying transaction unless
       the credit expressly incorporates its terms. This principle of independence provides
       the letter of credit with one of its peculiar values, assurance of payment, and makes
       it a unique device developed to meet the specific demands of the market place. . . .
       These features of letters of credit are of particular importance in international
       transactions, in which sophisticated investors knowingly undertake such risks as
       political upheaval or contractual breach in return for the benefits to be reaped from
       international trade. . . . Thus, in this context, 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. at 473-74 (internal quotations and citations omitted).


       In the instant case, the only injury that the Hendrickses have alleged is monetary. Therefore,

absent exceptional circumstances, their alleged injury is not “irreparable.”            And any such

exceptional circumstances must overcome the policies disfavoring the issuance of injunctions in

cases involving international letters of credit. The Hendrickses argue that they have met this burden

by presenting evidence that Mutual Indemnity is insolvent, and that various related entities are also

insolvent, which they primarily demonstrate through the introduction of the rehabilitation

proceedings for Legion Insurance, a related entity. Without more, this does not constitute



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No. 03-1952
Hendricks v. Comerica Bank

extraordinary circumstances. Indeed, other courts have denied injunctions in cases in which it was

unlikely that any foreign court could hear the underlying claim, a much more dire situation. See

Trans Meridian Trading Inc., 829 F.2d at 956 (“[W]here foreign courts provide even a potential

legal remedy, injunctions are rarely issued . . . .”); Enterprise Int’l, Inc., 762 F.2d at 473 (“[W]hen

it has been shown . . . at worst, that access to foreign courts is speculative, injunctive relief has been

refused.”). Here, the chance that Mutual Indemnity is or will become bankrupt and will not be able

to satisfy a judgment obtained against it presents less threat of irreparable harm than the chance that

there will not even be a proceeding available in which to obtain that judgment. See ANZ Bank, 13

F. Supp. 2d at 564-65. In addition, the Hendrickses have not argued that they can never achieve a

remedy in Bermuda courts. Because the Hendrickses have not demonstrated that their potential

monetary injury constitutes an exceptional circumstance, they are not entitled to an injunction

preventing Comerica Bank from honoring Mutual Indemnity’s draws on the letter of credit. The

district court’s conclusion that an injunction could be based on a finding that “the money is likely

as alleged to be dissipated in light of the questionable financial circumstances of the Mutual entity”

was therefore an improper application of governing law.

        Nor are the Hendrickses’ remaining arguments persuasive. They argue that an injunction

was appropriate because Mutual Indemnity has not demonstrated the validity of its claim to the

funds. This argument ignores the very nature of a letter of credit—it guarantees payment apart from

the merits of the underlying disputes. See Enterprise Int’l, Inc., 762 F.2d at 474. The Hendrickses

are free to litigate the merits of their fraud claim in Bermuda, but those merits are not relevant to the

question before this court.

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No. 03-1952
Hendricks v. Comerica Bank

                                              III.

       Because the district court erred in granting an injunction due to the lack of a showing of

irreparable harm, we do not need to reach the numerous other arguments advanced by both parties.

Accordingly, the preliminary injunction is VACATED.




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