Documentary Credit World

Topics: Breach of Contract; Discrepancies; Jurisdiction; Limitations Period; Pro se Litigant; Wrongful Dishonor

Note: To support an international sale of goods, a USD 411,600 letter of credit was allegedly issued by Bank Negara Indonesia (Alleged Issuer) in favor of Turbo Dynamics Corporation (Seller/ Beneficiary). JPMorgan Chase Bank was claimed to be involved, possibly as an advising bank. The goods were allegedly shipped mid-November 2011 to Jakarta, Indonesia. According to the complaint, filed pro se by Pierre Lavi (Plaintiff), Alleged Issuer sent an email to JPMorgan in December 2011 that “the docs” had been refused due to discrepancies. Plaintiff then claimed to visit with Alleged Issuer representatives in Jakarta in an attempt to receive payment. That trip eventually led to the instant litigation as Plaintiff believed that Alleged Issuer had engaged in fraud. Notably, no copy of the LC was provided to the court.

Plaintiff, as an individual and on behalf of Seller/Beneficiary,  sued Alleged Issuer for wrongful dishonor (couched as breach of contract), although as the Judge commented, the complaint asserted “various unspecified claims against [Alleged Issuer] and s[ought] money damages.” The claims asserted on behalf of Seller/Beneficiary  were dismissed sua sponte as “a pro se litigant cannot appear on behalf of a corporation.” As for the remaining allegations, Alleged Issuer ultimately moved to dismiss the action on the basis of failure of service of process as well as lack of jurisdiction. The U.S. District Court for the Southern District of New York, Broderick, J., granted Alleged Issuer ’s motion to dismiss.

Complaints filed by pro se litigants “are to be construed liberally” to afford the plaintiff an ability to raise the strongest claims possible. This “special solitude” has limits, however, and a pro se party must still meet pleading requirements under U.S. Civil Procedure Rules. After reviewing each of the relevant standards at the motion to dismiss stage, the Judge proceeded to address the critical defect of Plaintiff’s complaint: lack of jurisdiction. To effectively bring a case against a foreign entity, here Alleged Issuer (a bank partially owned by a foreign government), a plaintiff must follow service of process rules found in the U.S. Foreign Sovereign Immunity Act (FSIA). Generally, foreign state entities are immune from jurisdiction of the U.S. courts, unless a FSIA exception applies. While Plaintiff did not address any exception, the Judge reviewed the “commercial-activity exception”,₁  the only possible means of exercising jurisdiction.

Plaintiff could not rely on the first or second clauses of the exception as none of the alleged activity occurred in the U.S. All alleged action or inactions by Alleged Issuer occurred in Indonesia. The complaint implied as much as Plaintiff claimed visiting Jakarta to resolve the matter. Thus, Plaintiff was left with the third clause, i.e. whether the alleged activity, while occurring outside the U.S., caused “a direct effect in” the U.S. The crux of the complaint was that Plaintiff was “owed payment from a letter of credit that was opened by [Alleged Issuer]’s Semarang Branch in Indonesia in June 2011.” While there was legal precedent regarding a foreign LC issuer failing to make payment to a U.S. based account, Plaintiff did not plead a “direct effect” in the U.S. As no LC text
was provided, the Judge reviewed the complaint itself: “The Complaint contains no allegations or
indication that the contract had designated accounts in New York as the place of payment, or, for that matter, that any place in the United States was the place of performance”. Moreover, the complaint did not address whether Plaintiff, as opposed to Seller/Beneficiary,  “was a signatory to the letter of credit or a beneficiary of the letter of credit.” As all of the “legally significant acts” raised by the complaint occurred in Indonesia and outside the U.S., the Judge could not properly exercise jurisdiction over the matter.

For thoroughness, the Judge also briefly addressed the statute of limitations. Under a FSIA claim, the forum state governs whether allegations are time-barred. Applying N.Y. law, a cause of action for breach of contract must be brought within six years. The alleged dishonor occurred in 2011; Plaintiff brought suit in July 2022. For this reason alone, dismissal was justified.

Apart from jurisdiction and limitations issues, the complaint ultimately failed to state a claim upon which relief could be granted. As the Judge noted:

[I]t is not completely clear what cause of action Plaintiff is alleging against [Alleged Issuer]. He does not provide further information regarding the relationship between himself and [Alleged Issuer], provide information regarding any course of business with [Alleged Issuer], or state that there was a contract between himself and [Alleged Issuer].

While pro se litigations are afforded additional leniency, Plaintiff simply failed to assert any recognizable legal claim against Alleged Issuer, and the Judge could not “invent factual allegations” where none were stated. Thus, the motion to dismiss was granted and the complaint dismissed with prejudice.

[MJK]

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