                       RECOMMENDED FOR FULL-TEXT PUBLICATION
                            Pursuant to Sixth Circuit Rule 206
                                   File Name: 09a0033p.06

               UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                 _________________


                                            X
                                             -
 ROBERT LANGLEY; MOUNTAINEER
                                             -
 DEVELOPMENT COMPANY, LTD; COLONY
 CROSSING, LLC; LANGLEY-COLONIAL, LLC,       -
                      Plaintiffs-Appellees, -
                                                            No. 08-5032

                                             ,
                                              >
                                             -
                                             -
           v.

 PRUDENTIAL MORTGAGE CAPITAL COMPANY, -
                                             -
                                             -
                     Defendant-Appellant, -
 LLC,

                                             -
                                             -
                                             -
 NATIONAL CITY BANK,
                                Defendant. -
                                            N

                                 Filed: February 3, 2009
              Before: MERRITT, MOORE, and ROGERS, Circuit Judges.

                                   _________________

                                        ORDER
                                   _________________

        The court having received a petition for rehearing en banc, and the petition having
been circulated not only to the original panel members but also to all other active judges of
this court, and no judge of this court having requested a vote on the suggestion for rehearing
en banc, the petition for rehearing has been referred to the original panel.

        The panel has further reviewed the petition for panel rehearing and concludes that
the petition for panel rehearing should be denied. Accordingly, the petitions are denied.




                                              1
No. 08-5032         Langley et al. v. Prudential Mortgage Capital Co.                 Page 2


        ROGERS, Circuit Judge. The petition for rehearing is denied. The district court’s
order below was explicitly based in part on the invalidity of the forum selection clause. As
explained in the per curiam opinion, that analysis was not correct, and the preliminary
injunctive relief based on that analysis was therefore reversed. Rehearing is accordingly not
warranted.
No. 08-5032            Langley et al. v. Prudential Mortgage Capital Co.                           Page 3


         KAREN NELSON MOORE, Circuit Judge, with whom MERRITT, Circuit Judge,
joins, concurring in the denial of panel rehearing. I concur in the denial of panel rehearing.
Our per curiam opinion correctly concluded that the preliminary injunction granted by the
district court must be vacated. I write separately to explain that the preliminary injunction
must be vacated because the district court abused its discretion in determining that the four
preliminary-injunction factors weighed in favor of granting preliminary injunctive relief in
this case.

         As the per curiam opinion explains, this case involves an ordinary—if
complex—contract dispute. As I explain below, this fact is critical to the conclusion that the
district court abused its discretion in granting a preliminary injunction preventing Prudential
from drawing on the standby letters of credit and forbidding National City Bank from
honoring them. This court reviews a district court’s decision to grant a preliminary
injunction for abuse of discretion. Certified Restoration Dry Cleaning Network, L.L.C. v.
Tenke Corp., 511 F.3d 535, 541 (6th Cir. 2007). “A plaintiff seeking a preliminary
injunction must establish that he is likely to succeed on the merits, that he is likely to suffer
irreparable harm in the absence of preliminary relief, that the balance of equities tips in his
favor, and that an injunction is in the public interest.” Winter v. Natural Res. Def. Council,
Inc., --- U.S. --- , 129 S. Ct. 365, 374 (2008). “A preliminary injunction is an extraordinary
remedy never awarded as of right.” Id. at 376.

         Because the district court issued the injunction pursuant to KY. REV. STAT. § 355.5-
     1
109, Langley’s likelihood of success on the merits is evaluated under § 355.5-109,
which provides in relevant part:

         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 the issuer from honoring a
         presentation or grant similar relief against the issuer or other persons
         only if the court finds that: . . . [o]n the basis of the information


         1
           Because the district court assumed that the contracts containing choice-of-law clauses specifying
New York law were not enforceable, it applied Kentucky law. Prudential argues that the district court
should have applied New York law, but acknowledges that the error was harmless because the relevant
Kentucky and New York statutes are identical. Langley appears to suggest that Kentucky law applies but
also cites New York cases. I will assume, therefore, that Kentucky law applies for purposes of this appeal.
No. 08-5032         Langley et al. v. Prudential Mortgage Capital Co.                 Page 4


        submitted to the court, the applicant is more likely than not to succeed
        under its claim of . . . material fraud . . . .
KY. REV. STAT. § 355.5-109(2)(d) (emphasis added). Kentucky courts have not yet
considered what constitutes “material fraud” under § 355.5-109, which was enacted in
2000 to codify a revised provision of the Uniform Commercial Code, U.C.C. § 5-109.
However, like other courts, the Kentucky Court of Appeals interpreted the former
provision’s standard of “fraud in the transaction” to authorize a court to enjoin letters of
credit only in very limited circumstances. See Audio Sys., Inc. v. First Nat’l Bank of
Louisville, 753 S.W.2d 553, 555 (Ky. Ct. App. 1988) (“[T]he circumstances which will
justify an injunction against honor must be narrowly limited to situations of fraud in
which the wrongdoing of the beneficiary has so vitiated the entire transaction that the
legitimate purpose of the independence of the issuer’s obligation would no longer be
served.” (internal quotation marks omitted) (alteration in original)).

        The drafters of the revised U.C.C. provision intended the terms “material” and
“materially” to raise the burden of proof on the party seeking an injunction as compared
to the former version’s focus on “fraud in the transaction.” 3 JAMES J. WHITE & ROBERT
S. SUMMERS, UNIFORM COMMERCIAL CODE § 26-9, at 200 (5th ed. 2008). Although the
revised U.C.C. provides no definition of “material” fraud, the comments to § 5-109
endorse the fraud standard previously articulated by the First Circuit in Ground Air
Transfer, Inc. v. Westates Airlines, Inc., 899 F.2d 1269 (1st Cir. 1990) (Breyer, J.):

        [C]ourts may not normally issue an injunction because of an important
        exception to the general no injunction rule. The exception . . . concerns
        fraud so serious as to make it obviously pointless and unjust to permit the
        beneficiary to obtain the money. Where the circumstances plainly show
        that the underlying contract forbids the beneficiary to call a letter of
        credit; where they show that the contract deprives the beneficiary of even
        a colorable right to do so; where the contract and circumstances reveal
        that the beneficiary’s demand for payment has absolutely no basis in fact;
        where the beneficiary’s conduct has so vitiated the entire transaction that
        the legitimate purposes of the independence of the issuer’s obligation
        would no longer be served; then a court may enjoin payment.
No. 08-5032         Langley et al. v. Prudential Mortgage Capital Co.                 Page 5


Id. at 1272-73 (internal quotation marks and citations omitted); see also U.C.C. § 5-109
cmt. 1 (endorsing this passage). I find this formulation persuasive and helpful and
conclude that Kentucky courts would likely adopt a similar standard.

        Applying this standard to the instant case, nothing in the record indicates that
Prudential’s conduct rises to the level of “fraud.” As the discussion in the per curiam
decision makes clear, this case involves an ordinary contract dispute. The merits of this
contract dispute have not yet been litigated, and there is no need to decide whether
Prudential breached the Rate Lock Agreements by refusing to honor the interest rates,
or whether Prudential will ultimately be entitled to keep the Rate Lock Deposits.
Whatever the merits of Prudential’s claims and defenses in this case, it is clear that
Prudential’s position is at least “colorable.” Because Langley has not shown that
Prudential is acting fraudulently, he is not likely to succeed on the merits under KY. REV.
STAT. § 355.5-109.

        The district court found that payment on the letters of credit would cause Langley
irreparable harm by causing “loss of goodwill and reputation in the eyes of lenders who
are essential” to his real-estate-development business. J.A. at 139 (Dist. Ct. Op. at 10).
The general rule is that “a plaintiff’s harm is not irreparable if it is fully compensable by
money damages.” Basicomputer Corp. v. Scott, 973 F.2d 507, 511 (6th Cir. 1992).
However, this court has recognized that a loss of business goodwill may constitute
irreparable harm because of the difficulty in calculating damages. Id. at 512. Langley
of course may ultimately recover any amount paid to Prudential under the letters of
credit if he ultimately succeeds on the merits of this contract dispute. The district court
made its finding based solely on Langley’s testimony that he feared that a draw on the
letters of credit would hurt his reputation among lenders. This finding misunderstands
the nature of letters of credit. Under the so-called “independence principle,” a bank’s
duty to pay on letters of credit is independent of whether or not the applicant (here
Langley) and the beneficiary (here Prudential) have performed on the underlying
contract. WHITE & SUMMERS, supra, § 26-2, at 138. In other words, the bank “must pay
on a proper demand from the beneficiary even though the beneficiary may have breached
No. 08-5032         Langley et al. v. Prudential Mortgage Capital Co.                  Page 6


the underlying contract with the applicant.” Id. Consequently, payment on the letters
of credit in no way suggests that Langley breached or otherwise failed to perform under
the contracts with Prudential. It therefore strains credulity to think that Langley’s
reputation or goodwill would be tarnished upon payment of the letters. Accordingly,
Langley has not shown that he will suffer irreparable harm if the injunction is not
maintained.

         Finally, the remaining equities weigh against an injunction. Most important, the
“independence principle” is threatened if courts are willing to enjoin payment of letters
of credit not just in exceptional cases involving fraud, but in ordinary contract disputes
as well. As this court has explained elsewhere:

                 There are important policy reasons for upholding the validity of
         the documents without reference to the underlying agreements. The
         letter of credit’s primary value to the financial world is its reliability.
         Without it, a borrower requesting a loan from an institution unfamiliar
         with him would be unable to obtain funds. In such a situation, the lender
         must rely on the credit instrument to ensure that payment will be made.
Security Fin. Group, Inc. v. N. Ky. Bank & Trust, Inc., 858 F.2d 304, 307 (6th Cir.
1988).    When courts are too willing to enjoin payment of letters of credit, the
independence principle is weakened because parties must look not only at the “paper
transaction” embodied in the letters but also at the underlying contracts.

         Because each of the factors discussed above weighs against injunctive relief, the
district court abused its discretion in issuing the preliminary injunction.

                                        ENTERED BY ORDER OF THE COURT

                                              /s/ Leonard Green
                                        ___________________________________
                                                     Clerk
