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Note: The Koplic Corporation (Lender), a United States company, entered into a contract with PT Citra Hutama Kertasindo (Buyer), an Indonesian company. The contract specified that Lender would finance Buyer's purchase of second-hand paper mill machines and equipment in exchange for Buyer obtaining an LC to assure its repayment. Pursuant to this contract, Buyer obtained a standby LC for US$5,300,000 in favor of Lender from the Indonesian Bank of Bang Dagang Negara (Issuer), which, due to a merger, became Bank Mandiri. The LC entitled Lender to draw if Buyer defaulted on its repayment obligation.

Subsequently, Buyer received the paper mill machines and equipment and defaulted on the payment.

Lender then drew on the LC, but Issuer dishonored. In response, Lender sued Issuer in an Indonesian court, which rendered a decision in favor of Lender. This decision was subsequently appealed to the Indonesian Supreme Court, which dismissed the suit on a procedural ground. Lender, which had since become insolvent and was placed in the control of a trustee, then sued Issuer in the United States Bankruptcy Court for the Southern District of New York.

Issuer moved to dismiss the suit. The court, Gerber, J., denied Issuer's motion to dismiss. Issuer argued that the decision of the Indonesian Supreme Court was controlling. The court, noting that the Indonesian Supreme Court never reached the merits of the case, stated that "this Court believes that it would be contrary to American public policy to deny enforcement of a letter of credit without reaching the merits for an offense no greater than [a minor procedural oversight], at least without an opportunity and failure to cure." Moreover, the court indicated that it was deeply troubled by a U.S. State Department Country Report detailing "systemic corruption" in Indonesian courts and therefore concluded that it would not honor the Indonesian Supreme Court's decision even if the decision was based on the merits of the case.

[JEB/az]

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