Article

Note: Contractor, AssetWorks, Inc., a software development and implementation firm in Texas, contracted with the City of Cincinnati (Ohio) to provide the City with a "Work Order Resource Management Solution and Stores Inventory Management System." The contract was subject to Ohio law. The agreement was amended to require the Contractor to post a standby equal to 100% of the value of the contract. At Contractor/Applicant's request, Imperial Bank issued a standby for US$1,941,500 payable to City/Beneficiary.

Negotiations following a breach of contract by Applicant resulted in a further written agreement providing that Ohio state courts would be the exclusive forum for any unresolved disputes. When a dispute subsequently arose and was not resolved, Beneficiary drew on the LC and was paid.

Claiming that Beneficiary wrongfully overdrew the amount to which it was entitled, Applicant sued Beneficiary in a Texas state court for the overdrawn proceeds. Beneficiary removed the case to federal court in Texas and moved to dismiss the suit for improper venue, or alternatively, to transfer venue to the Southern District of Ohio. The federal trial judge referred the matter to a magistrate of the U.S. District Court for recommendation.

Upon referral, the Court Magistrate, Mathy, J., found for Beneficiary and recommended that Applicant's cause of action should be dismissed without prejudice. The U.S. District Court for the Western District of Texas, San Antonio District, Biery, J., accepted the recommendation and dismissed the action.

Applicant argued that Beneficiary had waived its right to rely on the forum selection clause by removing the case to federal court. The Magistrate rejected this argument, concluding that the precedent cited by Applicant was not binding in the jurisdiction and that forum selection clauses are enforced after removal when Beneficiary did not choose the original forum.

The Magistrate rejected Applicant's claim that the subsequent agreement was not properly executed under the terms of the original contract in that the appropriate City officials did not execute it. The Magistrate noted that Applicant waited three years to challenge the validity of the letter while it benefited from the delay, and, due to its delay, Applicant ratified 250 the letter and was estopped from denying its enforceability. The Magistrate also rejected the argument that Applicant failed to meet its considerable burden of proof that the forum selection clause was a result of Beneficiary's overreaching.

[JEB/rdhf]

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.