Topics: Fraud; Forged LCs; Personal Jurisdiction

Prior History: Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., No. 11 Civ. 1529 (KMW)(KNF), 2012 U.S. Dist. LEXIS 8987 (S.D.N.Y. Jan. 24, 2012) [USA], noted in 2013 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE at 376 (finding that the court lacked personal jurisdiction over the Beneficiary and that the LC was likely forged.); Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 02 Civ. 7504 (KMW) (KNF), 2003 U.S. Dist. LEXIS 19419 (S.D.N.Y. Oct. 28, 2003) [U.S.A.], noted in 2004 ANNUAL SURVEY OF LETTER OF CREDIT LAW & PRACTICE 263.

Note: In March 2011, Dorchester Financial Securities, Inc. (Beneficiary) sued Banco BRJ, S.A. (Issuer), a Brazilian bank, in New York for breach of contract and fraud stemming from Issuer's failure to honor a USD 250 million letter of credit (LC). Beneficiary had previously obtained a default judgment from the same court against Issuer but this judgment was unenforceable in Brazil because Beneficiary had not served process upon Issuer with the requisite formality by letters rogatory. On learning that the default judgment was unenforceable, Beneficiary successfully moved to have the judgment vacated and re-filed it and had it properly served.

Issuer then moved to dismiss the 2011 complaint for lack of personal jurisdiction. In response, Beneficiary produced: (1) a letter in which Issuer purportedly agreed that the LC "shall be governed by . . . the laws of the State of New York" and to "submit to personal jurisdiction in the City and State of New York for any claim or action arising from this transaction"; (2) a copy of the LC, which identified the Beneficiary as having a New York address; (3) an unauthenticated SWIFT message from Issuer to Beneficiary sent care of a bank in New York; and (4) a letter from Issuer to Beneficiary, addressed to Beneficiary's New York address, demanding a USD 250,000 fee in exchange for issuance of the LC.

Issuer supported its motion to dismiss with sworn testimony that all of the evidence produced by Beneficiary was forged. Specifically, it was alleged that: (1) Issuer had no record of any prior relationship to Beneficiary; (2) it never issued LCs in such amounts or of such a nature as the one presented by Beneficiary; (3) the signatures on the documents produced by Beneficiary were forgeries; (4) the individual who purportedly negotiated the LC on behalf of the Issuer had never been employed by the Issuer; and (5) the SWIFT message had not been sent by an employee of the Issuer.

Finding that the testimonial evidence presented by Issuer was "overwhelming", the United States District Court for the Southern District of New York, Wood, J., granted Issuer's motion to dismiss on the grounds that the court lacked personal jurisdiction over Issuer. In so finding, the Judge ruled that "direct, highly specific testimonial evidence regarding a fact essential to jurisdiction" may be sufficient to refute a plaintiff's allegations despite the general rule that, in the absence of an evidentiary hearing, "'[a]ll pleadings and affidavits are to be construed in the light most favorable to'" the party opposing a pre-trial motion.

On appeal, the United States Court of Appeals for the Second Circuit, in a per curiam opinion, vacated the district court's judgment and remanded the case. The appellate court rejected the trial court's ruling that, absent an evidentiary hearing, testimonial evidence may be sufficient to refute pleadings or affidavits made by the party opposing a pre-trial motion. Furthermore, the appellate court found that without an evidentiary hearing the letter in which Issuer purportedly agreed to submit to jurisdiction in New York for any claim arising from the issuance of the LC was decisive on the question of jurisdiction, even though there was "plainly reason to question the authenticity" of the document.

The appellate court did not directly address the question of whether the other documents produced by Beneficiary in opposition to Issuer's motion to dismiss would, by themselves, have satisfied personal jurisdiction requirements in the absence of an evidentiary hearing. However, it follows from the appellate court's ruling that, if the allegations in those documents were sufficient to establish personal jurisdiction over Issuer, Issuer's testimony that the documents were forgeries would not suffice to refute them.



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.