Article

Prior History: International Finance Corp. v. Kaiser Group Int'l, Inc. (In re Kaiser Group Int'l, Inc.), 399 F.3d 558 (3d Cir. 2005) [U.S.A.], noted in 2006 ANNUAL REVIEW at 362; Nova Hut a.s. v. Kaiser Group Int'l, Inc. (In re Kaiser Group Int'l, Inc.), 307 B.R. 449 (D. Del. 2004) [U.S.A.], noted in 2005 ANNUAL REVIEW at 348.

Note: Kaiser Group International, Inc. (Debtor/Guarantor) contracted with Nova Hut (Creditor/Beneficiary) to construct a steel mill in the Czech Republic. Creditor/Beneficiary financed the construction and required Debtor/Guarantor to obtain a performance standby letter of credit for US$11.1 million to assure that construction standards were met. Creditor/Beneficiary claimed that the standards were not met and drew on the LC.

Debtor/Guarantor claimed breach of contract and filed an adversary action against Creditor/Beneficiary to reclaim the $11.1 million from the letter of credit and engineering service fees, financial service fees, contingency fees, and a warranty reserve totaling $5.76 million. Creditor/Beneficiary "moved to stay the adversary proceeding and compel arbitration". The United States Bankruptcy Court for the District of Delaware, Katz, J., denied the motion. On appeal, The United States District Court for the District of Delaware, Farnan, J., reversed and compelled arbitration. Arbitration was conducted by the International Court of Arbitration. Creditor/ Beneficiary was allowed to draw on the letter of credit and Debtor/Guarantor was awarded $4.1 million in fees and reserve.

Creditor/Beneficiary moved to lift the stay and for a summary judgment in the adversary action. Debtor/Guarantor cross-moved for a partial summary judgment claiming that Creditor/Beneficiary had "improperly influenced" the arbitration proceeding. The United States District Court for the District of Delaware, Farnan, J., denied the motions.

In the current proceeding, Debtor/Guarantor moved to reverse the District Court's ruling that mandated arbitration under Federal Rule of Civil Procedure Rule 60(b)(6). Debtor/Guarantor claims relief was not justified because Creditor/Beneficiary first moved to compel arbitration and then moved to vacate the arbitration orders when the results were unfavorable. Debtor/Guarantor further claimed that Creditor/Beneficiary wrongfully contested the arbitration court's jurisdiction. Creditor/Beneficiary claimed this latest motion was pointless and sought costs and attorney fees. The United States Bankruptcy Court for the District of Delaware, Walrath, J., dismissed the motion and granted costs and attorneys' fees in favor of Creditor/Beneficiary.

"Relief is appropriate under Rule 60(b) only upon a showing of exceptional circumstances and where, absent such relief, an extreme and unexpected hardship will result." Creditor/Beneficiary did not violate any rules established in arbitration and did not question the International Court of Arbitration's jurisdiction; therefore, relief was inappropriate under Rule 60(b). Furthermore, Debtor/Guarantor's latest action unnecessarily prolonged the legal process and court costs and attorneys' fees were warranted.

[JEB/njh]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.