Article

Factual Summary: To secure an aircraft lease, Lessee/Applicant caused the Issuer to issue a standby LC in favor of Lessor/Beneficiary. Lessor/ Beneficiary subsequently "transferred and assigned the lease and its rights thereunder to [Assignee]."

Assignee later declared Lessee/Applicant to be in default, terminated the lease, and Lessor/ Beneficiary made demand on the LC to the Issuer on Assignee's behalf. Alleging that Lessor/ Beneficiary had divested itself of any and all right, title and interest in and to the LC, Lessee/Applicant sued Assignee, Lessor/Beneficiary and Issuer in Texas state court to enjoin Lessor/Beneficiary from drawing on the LC and Issuer from honoring the LC. Lessee further alleged that Lessor/Beneficiary and Assignee "fraudulently and tortuously interfered with [Lessee/Applicant's] contractual rights and rights to prospective advantage with [Issuer] and that [such] conduct amounts to a material breach of the lease and related agreements."

The state court granted the injunction and Lessor/ Beneficiary and Assignee removed the case to federal trial court. Lessee/Applicant filed a motion to remand the case to state court, claiming that, because it and Issuer were citizens of Texas, there was not complete diversity of citizenship as required under applicable jurisdiction rule, 28 U.S.C. 1441(b), and therefore the federal court lacked jurisdiction. The federal court denied the motion.


Legal Analysis:

1. Removal; Jurisdiction, US Diversity: Applicant claimed that the federal trial court lacked diversity jurisdiction because Issuer (as a codefendant) was a Texas citizen and the case was originally brought in Texas state court.

The federal trial court rejected Lessee/ Applicant's claims, ruling that the Issuer's status as a Texas citizen was irrelevant because Issuer had been improperly joined because "the plaintiffs are unable to establish a cause of action against the nondiverse defendant in state court."

The court noted that, while Lessee/Applicant made several allegations involving Lessor/Beneficiary and Assignee, Lessee/Applicant failed to plead any cause of action against Issuer. The court distinguished between having a cause of action under state law and the availability of a remedy under state law. In the instant case, even if Lessee/Applicant received injunctive relief against the Issuer, "it will be because of the underlying misconduct of [Lessor/Beneficiary] and/or [Assignee] and based on a cause of action asserted against one or both of them."

Lessee/Applicant also argued that Issuer is a necessary party under Fed. R. Civ. P. 19 which states that a party is necessary if "in the person's absence complete relief cannot be accorded among those already parties." The federal trial court again rejected Lessee/Applicant's argument, ruling that Lessee/Applicant would receive complete relief merely by the grant of an injunction preventing Lessor/ Applicant from drawing down on the LC.

[JEB/aee]

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.