Article

Topics: Fraud; Promise to Renew LC

Note: Viz Communications, Publisher, printer of Japanese animation and comics for English-speaking readers contracted with Captiva, Distributor, for distribution of the comic books in "multi-packs." To assure payment of the discounted price, Distributor caused an LC to be issued, payable to Publisher.

When the LC expired, Publisher claimed that Distributor "pledged to renew the letter of credit." The LC, however, was never renewed, and Distributor claimed that Publisher had waived the requirement.

Subsequently, disputes arose regarding returns of unsold comic books. Distributor brought an action against Publisher for breach of an oral agreement to accept returns, and Publisher counterclaimed for breach of agreement by failing to pay and brought a third party claim against Distributor's CEO for fraud in that he fraudulently "promised to renew the letter of credit without any intention of fulfilling the promise, and ... [he] falsely stated that [Distributor] had undertaken efforts to renew the letter of credit."

On motion by the CEO, the US District Court for the Northern District of Ohio granted summary judgment in his favor. On appeal, the US Court of Appeals for the 6th Circuit, Ryan, Moore, and Rogers, JJ., in an opinion by Rogers, affirmed.

The appellate court noted that:

[Publisher] has not created a genuine issue of material fact concerning [Distributor's CEO's] intent at the time he allegedly promised to renew the letter of credit. To establish that [the CEO] did not intend to honor the alleged promise, [Publisher] relies solely on the testimony of ... [Distributor's] employees responsible for the letter of credit, that they took no steps to renew the initial letter of credit. By itself, this evidence is not sufficient to sustain the inference that [the CEO] lacked present intent to perform the promise.

The appellate court also noted that:

[Publisher] has not identified any representations made by [the Distributor's CEO] concerning efforts to renew the letter of credit. [Publisher's CEO] testified that [Distributor's CEO] promised that [Distributor] would renew the letter of credit, but he did not testify that [Distributor's CEO] stated that efforts to renew the letter were underway. [An employee of Distributor], not [Distributor's CEO], informed [Publisher's CEO] that the new letter of credit was 'on the way.' Obviously, [Publisher] cannot sustain a fraud claim against [Distributor's CEO] in the absence of any alleged representation by [Distributor's CEO].

[JEB/jcs]

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