Article

Factual Summary: The London office of a German bank confirmed a commercial LC issued by a Venezuelan bank in favor of a Virginia beneficiary. The LC provided that drawings must be made at Confirmer's counters in London. After issuance, Confirmer and Beneficiary communicated several times by telephone and telefax concerning the LC. When Confirmer dishonored a presentation by Beneficiary for non-compliance of the documents, Beneficiary brought an action for wrongful dishonor against Confirmer in the U.S. federal courts in Virginia. Confirmer moved to dismiss on the ground that it was not subject to personal jurisdiction in Virginia and for forum non conveniens. The trial court granted the motion and dismissed the action for lack of personal jurisdiction.

Legal Analysis:

1. Waiver of Jurisdiction Defense: Beneficiary argued that Confirmer had waived its defense of lack of personal jurisdiction because a motion to stay a related case filed in the same court contained a footnote stating that it should be treated as a motion to strike the complaint. Beneficiary argued that under the applicable rules of civil procedure, Confirmer was required to raise its defense of lack of personal jurisdiction at the time a motion to strike was made. Noting that neither the parties nor the court to whom the motion was made considered any substantive issues in that case and that the question being addressed was the timing of any response as between the two filings, the court concluded in the case at bar that there was no waiver by Confirmer.

2. Personal Jurisdiction: Confirmer argued that it was not subject to Virginia's jurisdiction because it had not done any meaningful action in Virginia in connection with the credit that would bring it within the state's jurisdiction. Noting that the Virginia statute empowering courts to exercise jurisdiction over persons not resident in Virginia, a so-called long arm statute, encouraged the exercise of jurisdiction to the greatest extent permitted by the U.S. Constitution, the court considered whether the exercise of jurisdiction over Confirmer would constitute a violation of its right to due process of law. Accordingly, the court rephrased the issue to consider whether Confirmer had purposely directed the activities that gave rise to the dispute towards Virginia.

Noting that this issue had not previously been decided by Virginia courts, the court reviewed the decisions of other jurisdictions in similar cases. It concluded that "the majority of courts that have addressed the issue have found that jurisdiction does not arise from the issuance of letters of credit, because the letter of credit is not a contract between the beneficiary and the issuing bank" and that "instead, the contract is one between the issuing bank and the buyer, unrelated to and independent from the underlying contract between the buyer and the seller." The court also noted that "if the beneficiary is concerned with subjecting the issuing or confirming bank to a certain forum, it can require that the letter of credit be drawn and confirmed at a financial institution in that forum."

The court observed that Alaska and Colorado courts had reached an opposite conclusion, namely that "because the banks are aware that the final impact of their decisions to issue or honor letters of credit will be felt in the state in which the beneficiary resides ... those banks ... purposely avail themselves of the laws and privileges of the beneficiary's state."

Finding the majority view to be better reasoned and more consistent with the constitutional test, the court concluded that "a foreign bank, which agrees to confirm a letter of credit issued by another foreign bank in a foreign nation for the benefit of a resident of Virginia does not purposefully avail itself of the laws, privileges and protections of the Commonwealth of Virginia." It rejected the suggestion that telephone calls and telefaxes "comprised an effort by Defendant to avail itself of the privilege of conducting business in Virginia", noting that they were not "solicitous" in nature.

[JEB/llh]

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