Article

Factual Summary: To assure payment of a contract to purchase scrap metal, Applicant/Buyer procured two standby letters of credit from Issuer totaling US$15,390,000 in favor of Beneficiary/Seller. When Beneficiary/Seller notified Applicant/Buyer that it was in breach and that it had drawn on the letters of credit, Applicant/Buyer obtained a temporary restraining order in the Oklahoma state court, claiming that honoring the letters of credit would facilitate material fraud. Subsequently, a preliminary injunction was entered. Beneficiary/Seller removed the suit to federal court on the grounds of diversity of citizenship. Subsequently, Issuer obtained leave to intervene. Applicant/Buyer then moved to have the suit remanded to the state court on the ground that removal to the federal courts was improper. The United States District Court for the Northern District of Oklahoma, Kern, J., granted Applicant/Buyer's motion to remand the case to the District Court for Tulsa County.

Legal Analysis:

1. Issuer: Beneficiary argued that Issuer was merely a nominal party for purposes of determining whether its consent was required for removal from state to federal court. Noting the judicial rule that removal requires unanimous consent among defendants for removal regardless of the basis for federal jurisdiction, the Judge noted an exception where a defendant is a nominal party. Under applicable case law, the Judge stated that a nominal defendant "has no ownership interest in the property which is the subject of litigation."

Relying on Fisher v. Dakota Commerce Bank, 405 F. Supp. 2d 1089 (D.N.D. 2005), the Judge concluded that an issuer is not a nominal party where an injunction is sought based on Rev. UCC Section 5-109 letter of credit fraud. The Judge noted that Applicant had requested an injunction preventing Issuer from honoring its letter of credit due to letter of credit fraud. The Judge concluded that "a court's ultimate determination of the existence or nonexistence of fraud by [Beneficiary] will significantly impact [Issuer's] rights, risks, and responsibilities regarding the Letters of Credit." The Judge also noted that "[Issuer's] own money is at stake. [Issuer] is not merely a stakeholder or depositary for [Applicant] or [Beneficiary's] money." Observing that Issuer had stated in its brief that Applicant would not be able to reimburse it in the event of a drawing, the Judge stated "[Issuer] is interested in the question of whether its [US]$15,000,000 will be sent to an Austrian bank account for the benefit of a Hong Kong corporation, or whether the funds will be maintained in [Issuer's] possession until the allegations of fraud against [Beneficiary] are resolved."

[JEB/mcb]

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