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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1998 LC CASE SUMMARIES No. 97-4252, 159 F. 3d 1089 (7th Cir. 1998)
Topics:
Fraud; Res Judicata; Bad Faith; Malicious Prosecution.
Type of Lawsuit:
The beneficiary sued the applicant for wrongful injunction and malicious prosecu-tion in bringing an action to enjoin honor of a LC and interference with a contractual relationship and punitive damages.
Parties:
Beneficiary- Xantech Corporation (Counsel: Margot F. Reagan, Sean E. Kenyon of Konopa& Murphy)
Applicant- Ramco Industries, Inc., J. Edward Ramsey (Counsel: Alan L. Weldy of Yoder, Ainlay, Ulmer & Buckingham; Cassidy C. Fritz)
Underlying Transaction:
Purchase of the assets of beneficiary's lighting division by the applicant.
LC:
Standby letter of credit. Silent as to governing rules.
Decision:
The U.S. Court of Appeals for the Seventh Circuit, Rovner, J., affirmed the deci-sion of the U.S. District Court for the Northern District of Indiana, Sharp, J., grant-ing summary judgement in favor of the applicant with regard to the claims of mali-cious prosecution and reversing it with respect to the claims of wrongful injunction, interference with a contractual relationship and punitive damages.
Rationale:
The issuance of a temporary injunction by a trial court demonstrated that as a matter of law there was probable cause, thereby justifiying summary judgment for the applicant in an action for malicious prosecution. The factual overlap between the action for an injunction and the action to recover costs resulting from the injunc-tion was sufficiently different that the latter action was not barred by the doctrine of res judicata.
res judicata.
Article
Factual Summary: To assure payment of the purchase price for its lighting division over several years, buyer obtained a standby payable to seller. Subsequently, the parties agreed to a price reduction in exchange for advance payment of the full obligation. The applicant, however, had failed to inform the beneficiary that it had in the meantime resold the division in violation of the security agreement then in force.
On learning of this development, the beneficiary deposited the proffered check under reservation of rights and demanded the full amount. The applicant refused and the beneficiary drew on the LC but the issuer refused to pay on the basis of the applicant's representation that full payment had occurred.
At the same time, the applicant obtained a temporary injunction against honor of the LC, which was lifted on appeal on the ground that the alleged fraud was not related to the LC transaction but the modification of the underlying contract. Id. 643 N.E.2d 918 (Ind. App. 1994) abstracted in 1995 Annual Survey at 507. After the injunction was reversed, the applicant filed a cross claim against the applicant for unjust enrichment, indemnification, bad faith, and fraud and the beneficiary was awarded summary judgment and the action was dismissed.
Thereafter, the beneficiary filed the instant action seeking relief from the applicant for wrongful injunction, malicious prosecution, interference with a contractual relationship, and punitive damages. The applicant moved for summary judgement, which was granted. On appeal, affirmed in part and reversed in part.
Legal Analysis:
1. Injunction: Wrongful Prosecution-Res Judi-cata: The trial court ruled that the beneficiary's claims could have been raised in the original case seeking injunctive relief and were thus barred in a subsequent action under the doctrine of res judicata which fosters finality in judicial actions. The appellate court disagreed. While recognizing "a certain logical overlap" between the injunction and an action to recover for the costs resulting from that injunction, it concluded that the cases arose from two different occurrences. The court stated that "even assuming that [the beneficiary] could have asserted within the confines of the state court action a claim for wrongful injunction or any of the other claims it makes now, claim preclusion did not prevent it from instead choosing to reserve those claims for subsequent and separate litigation."
2. Injunction: Wrongful Prosecution: The trial court based its summary judgment in favor of the applicant in part on the conclusion that the beneficiary could not prove one of the elements of a cause of action for malicious prosecution, namely the lack of probable cause. It concluded that the complexity of the case and the award of a temporary injunction and the subsequent refusal to dissolve it demonstrated probable cause. The appellate court concurred and affirmed as to this aspect of the decision.
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