Article

Factual Summary: To pay for the purchase of goods from Seller, Korean Buyer obtained a freely negotiable LC issued from a bank in Seoul, Republic of Korea. It was advised through Local Successor.

Before any drawing, Issuer sold all of the assets and liabilities of its New York, USA branch to Local Successor. Beneficiary subsequently mailed the LC and supporting documentation to Local Successor, demanding payment. Local Successor forwarded these documents to Issuer's Republic of Korea branch but did not negotiate the documents.

When Issuer dishonored the presentation, Seller sued Issuer for breach of contract to honor its LC, and subsequently amended its claim to add Local Successor. Issuer filed a motion to dismiss, claiming that it was not subject to personal jurisdiction in New Jersey. Local Successor moved to dismiss for failure to state a claim upon which relief may be granted, arguing that it was an advising bank and could not be held liable for honoring the LC. The trial court denied Local Successor's Motion and granted Issuer's Motion.

Legal Analysis:

1. Personal Jurisdiction: Issuer argued that it was not subject to jurisdiction in New Jersey because it did not have sufficient contacts with the state to give rise to jurisdiction. The court observed that "[t]he sole contact ... is the naming of the New Jersey company as the beneficiary of the letter, which was issued in Seoul, Korea." Since Issuer did not have any systematic and continuous contacts with the forum, the applicable due process test was whether there were sufficient minimum contacts and whether the exercise of jurisdiction would comport with traditional notions of fair play and with substantial justice as set forth in US Supreme Court opinions.

The court concluded that issuance of an LC to a resident of a state does not in and of itself subject the issuer to the jurisdiction of that state, adopting the rule of Chandler v. Barclays Bank PLC, 898 F.2d 1148, 1151 (1977) [U.S.A.]. The court granted Issuer's motion to dismiss. The court noted that Beneficia . The court noted that Beneficiary could have asked for an LC from a New Jersey bank, have required that it be confirmed by a New Jersey bank, or insisted on a forum selection clause in the LC, but did not. Consequently, the court concluded that "traditional notions of fair play and substantial justice would be offended by hailing [Issuer] into this Court merely because it issued a letter of credit with respect to a Korean purchase of goods in favor of a New Jersey corporation."

2. Advising Bank; Successor: Local Successor argued that it was an advising bank for the purpose of the LC, and thus cannot be held liable for honoring the LC. While noting that "[t]he role of the advising bank is typically 'incidental' to the letter of credit transaction" (quoting from Leonard A. Feinberg, Inc. v. Central Asia Capital Corp., 974 F. Supp. 822 (D. Pa. 1997) [U.S.A.], the court observed that the complaint against Local Successor was based on its role as successor to the New York Branch of Issuer rather than its role in transmitting the LC. It stated that the issue was "whether the two banks are separate entities." Since every inference must be accorded to the party opposing the motion to dismiss, the court ruled that it was "not able to conclude that [Local Successor] acted solely as an advising bank..."

[JEB/dgd]

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