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Note: Keating Fibre International, Inc., Keating Fibre, Inc., and their principals (Buyers), offered to pay for paper products for export from the proceeds of LCs provided by the ultimate buyers in lieu of a personal guarantee by their principal, Frank J. Keating. Sunburst Paper, LLC (Seller) "accepted the [LCs] in lieu of a personal guarantee."

Although the goods were shipped by Seller, invoices were not paid and Buyers "allegedly kept the [LC] proceeds for their own personal benefit." Accordingly, Seller sued Buyers for non-payment, fraud and negligent misrepresentation and sought damages. Buyers moved to dismiss the fraud and misrepresentation claims and the claim for punitive damages. The U.S. District Court for the Eastern District of Pennsylvania, Padova, J., granted the motions.

The court noted that Seller failed to state a cause in tort for fraud and negligent misrepresentation because Buyers' duty to pay for the goods with the proceeds of the LC was established pursuant to a contract for the sale of goods and the only damages Seller incurred were economic damages. Observing that Seller's claim was for breach of contract, the court dismissed the Seller's claim for punitive damages because punitive damages are not available for breach of contract claims.

Comment by James E. BYRNE:

1. Proceeds: In this situation, seller should have obtained an effective assignment of proceeds or, even better, a transfer of the LC.

[JEB/al]

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