In Re James S. Hamada, Debtor. James S. Hamada v. Far East National Bank, a California Corporation

291 F.3d 645 In re James S. HAMADA, Debtor. James S. Hamada, Appellant, v. Far East National Bank, a California Corporation, Appellee. No. 00-56865. United States Court of Appeals, Ninth Circuit. Argued and Submitted March 7, 2002. Filed May 29, 2002. COPYRIGHT MATERIAL OMITTED David A. Tilem & C. Casey White, Tilem & White, LLP, Glendale, CA, for appellant James S. Hamada. Adam A. Lewis, Morrison & Foerster, San Francisco, CA, for appellee Far East National Bank. Appeal from the United States District Court for the Central District of California; J. Spencer Letts, District Judge, Presiding. D.C. No. CV-00-04276-JSL. Before: THOMAS and RAWLINSON, Circuit Judges, and ARMSTRONG, District Judge. 1 THOMAS, Circuit Judge. 1 In this appeal, we consider, inter alia, the rights of statutory and equitable subrogation held by the issuer of a standby letter of credit. Under the circumstances presented by this case, we conclude that no right of subrogation existed. Therefore, we reverse the judgment of the district court. 2 * James S. Hamada was the defendant in a breach of fiduciary duty and fraud action filed by his former partner in medicine. The judgment provided for damages…

In this appeal, we consider, inter alia, the rights of statutory and equitable sub-rogation held by the issuer of a standby letter of credit. Under the circumstances presented by this case, we conclude that no right of subrogation existed. Therefore, we reverse the judgment of the district court.

I

James S. Hamada was the defendant in a breach of fiduciary duty and fraud action filed by his former partner in medicine. The judgment provided for damages of $500,000, punitive damages of $1.25 million, and prejudgment interest. Hamada appealed, and sought a supersedeas bond to stay execution of the judgment while his appeal was pending. He applied for a bond with Fidelity and Deposit Company of Maryland (“Fidelity”), and Fidelity agreed to provide the supersedeas bond if Hamada paid certain fees, indemnified Fidelity if the bond were to be called, and *648 posted a standby letter of credit for the full amount. Hamada .secured the letters of credit from Imperial and Far East banks, which agreed to provide the letters in exchange for Hamada’s indemnification and provision of real and personal property as collateral. The letters were issued, and Fidelity issued the supersedeas…

dissenting:

I do not concur with the majority’s analysis and conclusion with respect to Appel-lee Far East National Bank’s claim for equitable subrogation, and as such, I respectfully dissent from that portion of the majority’s opinion. To place my comments in their proper context, it is helpful to first briefly review the salient facts of this case.

I.

In or about 1985, James S. Hamada, M.D., (“Hamada”) was sued in Los Ange-les County Superior Court by his former medical partner G. Karlin Michelson, M.D., (“Michelson”) for fraud and breach of fiduciary duty. The matter was tried and a jury returned a verdict in favor of Michelson. The jury awarded Michelson compensatory damages in the amount of $500,000 and $1.25 million in punitive damages. On February 2, 1990, the trial court entered judgment in accordance with the jury’s verdict.

Hamada appealed and was required to post a supersedeas bond to stay enforcement of the judgment. He applied to Fidelity & Deposit Company of Maryland (“the Surety”) to post the requisite bond. As a condition of issuing the bond, the Surety required Hamada to sign an indemnification agreement secured by standby letters of credit. Hamada obtained…