Article

Note: In order to obtain additional financing for a hydroelectric project in Hawaii, Wailuku River Hydroelectric L.P. (Beneficiary) entered into a $6,000,000 loan agreement with InterCoast Capital Company (Applicant). Applicant's obligations to lend were supported by a standby letter of credit issued by Bankers Trust of Iowa (Issuer).

US$994,000 was drawn under the LC based on certificates signed by Beneficiary's senior lender, Union Bank of California (Bank), stating that Beneficiary's cash position was insufficient to pay for debt service and working capital. Claiming that Beneficiary was in default under its loan agreement with Applicant and that drawings under the LC were improper, Applicant commenced an action for contract remedies and injunctive relief in Iowa. Union Bank and Beneficiary filed a motion to dismiss for improper venue or, in the alternative, to transfer the case to Maryland. Applicant filed a motion to add Issuer as an additional party. The U.S. District Court for the Southern District of Iowa, Central Division, Gritzner, J., denied the motions to dismiss and transfer and granted the motion to amend.

Bank and Beneficiary apparently conceded that the court had personal jurisdiction over them but argued that venue was improper because the claims had no connection with Iowa, in that the loan agreement was between a Hawaii limited partnership and a Delaware corporation with its place of business in South Dakota, Bank was located in California, the hydroelectric project was managed from Maryland, and the non-exclusive Iowa forum clause in the loan agreement was un enforceable.

The court emphasized that the loan agreement was entered into when Applicant's principal place of business was in that district of Iowa and that Issuerwas located in the same district, so that the harm that Applicant would suffer, were the LC drawn down further, would be in Iowa.

[JEB/tas]

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