Notable Moses Singer Wins in
Letter of Credit & Documentary Collections Cases
Moses & Singer LLP’s decades of experience handling letter of credit and other trade finance matters is not limited to its well-known Banking & Finance Practice Group, co-chaired by Michael Evan Avidon and Paul Roder, each prominent in the letter of credit space and a past or current Co-Chair of the American Bar Association’s Letters of Credit Subcommittee. They have worked with the Moses Singer Litigation Practice Group to litigate numerous significant letter of credit or documentary collections cases across the country, in state and federal courts, for a host of financial institution and other clients. Our practice groups work closely together to better serve our clients in advisory and transactional matters as well as litigation and other disputes. In many of these litigations, our transactional lawyers, like Mr. Avidon (a former litigator as well), serve alongside our litigators, to add an additional layer of experience and expertise for our clients involved in these litigations.
To illustrate the breadth of our experience litigating letter of credit and documentary collections cases, below is a summary of our notable wins over the past 25 years:
The Successful Disposition of Letter of Credit Cases at Their Earliest Stages
In 3M Company v. HSBC Bank USA, N.A., 95 UCC Rep.Serv.2d 896, 2018 WL 1989563, 16 Civ. 5984 (PGG), (U.S. Dist. Ct., S.D.N.Y. April 25, 2018), we successfully defeated 3M Company’s motion for a preliminary injunction, effectively ending the case. We convinced the Court that 3M had no likelihood of success proving fraud by Ziraat, a Turkish bank to whom our client HSBC had issued a counter-standby letter of credit. The HSBC counter-standby could be drawn upon by a simple statement by Ziraat that a second Turkish bank (Aktif Bank) had called upon a letter of credit issued by Ziraat to Aktif. 3M alleged that the Turkish Post Office, the beneficiary of an undertaking issued by Aktif, had committed fraud and that such fraud should be attributed to Ziraat too. However, we showed that 3M had authorized HSBC to amend the HSBC letter of credit to remove any requirement that Ziraat state that the drawing by the Post Office complied with the terms of the underlying contract between 3M and the Post Office.
Hoang Thinh Co. Ltd. v. Solar Air, LLC, Keeton industries, Inc., Wells Fargo Bank, N.A., Vietnam Bank For Agriculture And Rural Development (Agribank), Index No. 651482/2010 (NY Sup. Ct., N.Y. Co. Sept. 20, 2010). In this case, Moses & Singer represented Wells Fargo, the issuing bank, and persuaded applicant to withdraw its request for a preliminary injunction against payment of a letter of credit.
Application of the Strict Compliance Rule Governing Letter of Credit Presentations
In MEPT 757 Third Avenue LLC v. Sterling National Bank, Index No. 652089-2016 (Sup. Ct., N.Y. Co., NY 2016), we represented the issuing bank, Sterling National Bank, which had issued a standby letter of credit upon application of a tenant as security for the tenant’s rent obligations to the landlord/beneficiary. The letter of credit’s terms required presentation of the original letter of credit and any amendments, but the beneficiary had apparently lost the original and offered up a copy and an indemnity instead. We successfully moved for summary judgment on the grounds that the issuing bank need not honor the presentation without the missing original and had no obligation to waive the requirement for the original or accept an indemnity in lieu of the missing original.
In C.I. Union de Bananeros de Uraba S.A. v. Citibank, N.A., No. 602314/1999 (Sup. Ct., N.Y. Co., NY Apr. 12, 2000), the court held that our client, Citibank, the issuing bank, properly dishonored documents under a standby letter of credit backing up a commercial shipment where the documents were inconsistent on their face (name of consignee, quantity, destination). That the beneficiary could explain why the documents appeared inconsistent on their face was irrelevant, because the issuing bank examines the face of the presented documents. The court also held that the issuing bank’s time to examine the documents does not start to run until it receives them, so the bank was not precluded from asserting the discrepancies based on the number of days from when a different bank received the documents from the beneficiary.
Reinforcing the Independence and Irrevocability of Letter of Credit Obligations
In Natixis Funding Corp. et ano v. GenOn Mid-Atlantic, LLC and related actions, N.Y. County Index Nos. 650817/2018 etc., 2019 WL 2319171, 2019 N.Y. Slip Op. 31511(U) (Sup. Ct. N.Y. Co. 2019), aff’d, 181 A.D.3d 481, 121 N.Y.S.3d 34 (App. Div. 1st Dep’t March 12, 2020), app. den., 35 N.Y.3d 912 (2020), our firm represented 11 successful letter of credit beneficiaries in multiple related cases against two Natixis entities involving hundreds of millions of dollars. Natixis claimed that it had erroneously drafted the letters of credit so that they could be drawn on in the total amount of $286 million when the total should have been $130 million, that the drafting error was known to the beneficiaries, that the beneficiaries’ draws in excess of $130 million were fraudulent, and that the beneficiaries would be unjustly enriched by further LC payments. Our clients moved to dismiss the Natixis complaint and four of our clients filed their own actions for summary judgment in lieu of complaint (an expedited New York State legal procedure) claiming wrongful dishonor of their drawings on certain Natixis letters of credit. The trial court dismissed Natixis’ lawsuit and granted summary judgment to the four beneficiaries that sued for wrongful dishonor. The appellate court affirmed. Natixis’ claim that it had made a unilateral mistake in drafting 11 letters of credit by failing to include an aggregate $130 million cap across the 11 letters of credit was rejected, the court holding that each beneficiary was entitled to enforce its individual letter of credit as written and that the issuer’s unilateral drafting mistake was not a basis to reform or rescind irrevocable letters of credit. The alleged mistake here was not evident from the face of the 11 LCs and the court held that the contract under which Natixis Funding received $130 million in exchange for having Natixis NY issue the letters of credit was irrelevant to the letters of credit due to the independence principle. On the other issues, the court rejected Natixis’ claims of fraud, unjust enrichment, and quasi-contract. The courts’ rulings reinforce the independence of letters of credit from other contracts and relationships and also reinforce the right to rely on letters of credit as written, bolstering the status of the letter of credit under New York law as an enforceable, independent, documentary payment mechanism.
Management of Multiple Cases in Different Jurisdictions Involving the Same Transaction
We have also handled multiple cases involving the same underlying transaction, but which were pending in different jurisdictions. For instance, in The Louis Berger Group, Inc. v. State Bank of India, New York Branch, 802 F.Supp.2d 482 (U.S. Dist. Ct., S.D.N.Y. 2011), we represented an issuing bank, State Bank of India, which was the target of legal actions in India and New York seeking contradictory relief – in India by the applicant to enjoin the bank from paying a draw on a letter of credit, and in New York by the beneficiary to order the bank to pay the same draw. We obtained an order in New York staying the case until the applicant and beneficiary had completed an arbitration determining whether the draw was fraudulent and thereby avoided potentially contradictory orders to the bank in different jurisdictions.
And in Man Industries (India) Ltd. v. The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, (Sup. Ct., NY Co., NY Nov. 30, 2009), the court at our request stayed an action brought by an Indian letter of credit beneficiary against our client, the issuing bank, pending the earlier of completion of Texas litigation commenced prior to the New York litigation involving the same letter of credit and underlying transaction or a decision by the Texas court that it did not have jurisdiction over the beneficiary.
Successfully Enforcing a Bank’s Waiver of any Right to Set Off
In two 2022 decisions, the New York Commercial Division granted summary judgment to our client, BNP Paribas, Singapore Branch, for approximately $46 million drawn on a letter of credit plus interest against Natixis, New York Branch. Natixis, New York Branch v. BNP Paribas, 2022 WL 72758, 22022 N.Y. Slip Op. 30038 (N.Y. Sup. Ct. 2022), and BNP Paribas, Singapore Branch v. Natixis, New York Branch, 2022 N.Y. Slip Op. 30679 (N.Y. Sup. Ct. 2022). The decisions involved two related cases, the first brought by Natixis for judgment declaring it was entitled to set off a debt against the draw by BNP on the letter of credit, and the second brought by BNP for summary judgment in lieu of complaint seeking payment of the full amount without setoff. The court held: (i) Natixis had failed to raise an issue of fact; (ii) Natixis had expressly waived any right of setoff; and (iii) it was too late for Natixis to claim that BNP was not a holder in due course because Natixis had already made partial payment to BNP. The court rejected Natixis’ attempt to pay BNP less than it owed by asserting a setoff where Natixis had promised to pay “without any set-off.”
Complex Fact Patterns Involving State and Foreign Laws
Our litigators handle letter of credit cases with complex fact patterns involving various state and foreign laws. In Societe Anonyme Marocain de l’Industrie du Raffinage v. Bank of America N.A. Petraco Oil Company LLP, Intervenor, Index No. 653329/15 (Sup. Ct., N.Y. Co., NY 2015), we worked with co-counsel in a case potentially implicating English law, California law, New York law, Pennsylvania law, and other law. We represented Bank of America as issuing bank, and moved for summary judgment on the ground that beneficiary Petraco Oil Company’s repeated attempted drawings, despite having already been paid for the oil covered by the letter of credit, constituted fraud. (In an arrangement common in the oil trading industry, Bank of America had issued a standby letter of credit backing the purchase of oil, which could be reduced in amount by certain payments made outside the letter of credit). Not only was Petraco’s claim dismissed, but an award of counsel fees was obtained.
Moses Singer Takes Letter of Credit Cases to Trial When Necessary
Because letter of credit disputes typically turn on documents, they can usually be resolved by motion prior to trial. However, we can take a letter of credit case to trial where necessary. In Midcontinent Express Pipeline LLC v. Man Industries (India) Ltd., Prime Pipe International, Inc., and The Bank of Tokyo-Mitsubishi UFJ, Ltd., Cause No. 2008-56539 (Dist. Ct., 133rd Judicial Dist., Harris County, TX Aug. 24, 2011 decision), we acted as letter of credit and NY counsel to the issuing bank of a standby letter of credit in a trial in Harris County, Texas, and worked with the bank’s Texas counsel. After trial the court held, among other things: (i) the letter of credit required presentation of paper documents to the issuing bank in New York rather than electronic presentation by SWIFT; (ii) the presentation was required but failed to appear on its face strictly to comply with the terms and conditions of the letter of credit, as the documents would be viewed by a professional letter of credit document checker applying standard practice for standby letters of credit; (iii) the bank’s notice of dishonor was adequate and timely given within two business days after the business day of receipt of the presentation; (iv) the beneficiary’s presentation was materially fraudulent; (v) a temporary restraining order issued by the court on the basis of material fraud entitled the bank to dishonor; (vi) if the bank had been liable for wrongful dishonor, it would have been liable only for direct damages, which under these facts would have been the amount of the beneficiary’s unpaid invoices covered by the credit, which was $0 after giving effect to the beneficiary’s right, if any, to recover from funds deposited by the applicant in the court’s registry; and (vii) the bank as a prevailing party was entitled to certain attorney’s fees.
We Have Appeared for a Successful Amicus Curiae in an Important Letter of Credit Case
We have advised leading bank trade associations and can represent an “amicus curiae” where the circumstances warrant it. In Banco Nacional De Mexico, S.A. v. Societe Generale, 34 A.D.3d 124, 820 N.Y.S.2d 588, 2006 N.Y. App. Div. LEXIS 10829, (First Dept. 2006), at issue was a New York choice of law and forum provision. The appeals court reversed the lower court and unanimously held, as urged by our client, The Clearing House Association L.L.C., a leading bank trade association that appeared as an amicus curiae, that if a letter of credit specifies New York law and a New York forum, a ruling of a foreign court on the parties’ rights will not be enforced in NY, and the NY court will judge the case for itself. The NY lower court had deferred on the basis of comity to a Mexican court order enjoining the issuing bank from paying a confirming bank. The confirming bank appealed, and the appeals court reversed, as urged by the amicus. The appellate court refused to defer to the Mexican decision in the face of the parties’ selection of NY law and a NY forum. The Court pointed to NY’s 2000 enactment of UCC Revised Article 5, which removed the previous requirement that to enforce a choice of law clause there had to be a “reasonable relation” to the chosen jurisdiction. That enactment also permits the parties to freely select the forum where letter of credit disputes will be resolved. The court thus held that despite various contacts with Mexico, revised UCC § 5-116(a) “requires application of New York substantive letter of credit law when the parties choose it, regardless of any relationship or lack thereof with New York State.” The appeals court applied the general policy that, “As a primary financial center and a clearinghouse of international transactions, the State of New York has a strong interest in maintaining its preeminent financial position and in protecting the justifiable expectation of the parties who choose New York law as the governing law of a letter of credit.”
Involvement in Landmark Letter of Credit Cases
Our experience litigating letter of credit cases has resulted in our participation in other landmark letter of credit cases besides Banco Nacional De Mexico, above. For example, in 3Com Corp. v. Banco do Brasil, S.A., 2 F. Supp.2d 452 (U.S. Dist. Ct., S.D.N.Y. 1998), aff’d, 171 F.3d 739 (2d Cir. 1999), the court granted judgment for our client, 3Com, the beneficiary of a letter of credit, where the issuing bank claimed that the letter of credit had expired and that 3Com’s drawing was fraudulent. In so ruling, the court held that notice of non-renewal of an evergreen letter of credit must be clear and unequivocal (not an arguable request for consent to early termination) to stop automatic extension and that there was no fraud in drawing for an unpaid invoice not in the name of the applicant where the letter of credit did not require that the invoice be issued in the name of the applicant, and the applicant was liable on the invoice on several theories, including as a guarantor. Apart from the landmark ruling that notice of non-extension must be clear and unequivocal, the case was also notable because the U.S. District Court Judge was Sonia Sotomayor, later a Justice on the U.S. Supreme Court.
Dismissal of a Documentary Collections Case
There are relatively few cases brought against collecting banks claiming mishandling of documentary collections. We successfully moved to dismiss such a case against our client, JPMorgan Chase Bank, in Generation Next Fashions Ltd. v. JPMorgan Chase Bank, N.A., --- F.Supp.3d ---, 2023 WL 6812984, No. 21-cv-9266 (LJL), (S.D.N.Y 2023). The dismissed claims included claims for breach of contract (no breach), breach of fiduciary duty (no such duty), conversion (no alleged act of conversion by Chase since it was authorized to turn over the documents), negligence (Chase did not breach any duty nor cause damages – buyer failed to pay for the goods on its own), tortious interference with contract (can’t interfere with one’s own contract nor can any interference that occurs after damages are incurred have caused those damages), bailment (no breach where directions were followed), fraud (not alleged with particularity as required), and civil conspiracy (no underlying tort as required for such a claim).
Subrogation is a Potential Remedy for an Unreimbursed Issuer or Confirmer
In re Enron Corp., JPMorgan Chase Bank v. Quachita Power LLC, et al, No. 01-16034 (03-8150 & 03-8151) (Bankr. Ct., S.D.N.Y. 2006). The court granted motions to dismiss certain claims by our client, JPMorgan, an unreimbursed letter of credit issuing bank, but importantly recognized that an unreimbursed issuing bank may be subrogated to the claims of its applicant, including claims by the applicant for the beneficiary’s breach of the UCC Article 5 presentation warranties and claims by the applicant to be subrogated to the rights of its subsidiary in the underlying transaction between the subsidiary and the beneficiary. The case settled prior to a ruling by the District Court on appeal.
The Doctrine of Privity has Vitality in the Letter of Credit Arena
In Nova Hut, A.S. v. Meikle, No. 00-RB-547, (U.S. Dist. Ct., Colo. Aug. 29, 2002), the applicant lost a case against our client Bankers Trust Company, a confirming bank. The court held: (i) the defrauded buyer was unable to shift its losses to our client that had paid its confirmation of a commercial letter of credit; (ii) under UCP 500, advisers and confirmers owe no duty to applicant, and common law duties should not be added to any imposed by letter of credit law and practice; (iii) no need to look to former UCC Article 5 for gap-filling purposes since UCP 500 speaks to the lack of duty of a confirmer to an applicant; (iv) applicant not subrogated to issuing bank’s rights under former NY UCC Article 5 because, and even if subrogation were allowed, issuing bank was precluded from asserting any discrepancies since it failed to object within seven banking days after it received the documents; (v) no breach of contract by Bankers Trust because there was no contract between the confirmer and the applicant – no privity, and applicant not a third party beneficiary of any contract between issuer and confirmer; (vi) UCP 500 creates no fiduciary duty of confirmer to applicant nor does other law; and (vii) negligence claim also rejected because confirmer owes no duty to applicant.
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If you have any questions or would like further information about any of these cases, please contact Mike Avidon at mavidon@mosessinger.com.