Note: David Fink and Jerome Keough (Lenders) provided a USD 300,000 short-term loan to Corporate Liaison, LLC and its Principal, Susan Werth (Borrowers), which was secured by a USD 390,000 standby letter of credit that was apparently issued by Citibank. Lenders wired the proceeds to Borrowers' Citibank account. Borrowers claimed that the standby was backed by a USD 1,000,000 Citibank Certificate of Deposit. When Borrowers failed to repay the loan, they offered excuses, claiming that the account to which the funds had been wired was "frozen due to the Patriot Act", but would be unfrozen by a specific date. On that date, Borrowers told Lenders that Citibank had closed the account.

When Lenders contacted Citibank regarding the standby LC, they were informed that Citibank never employed the person whose name was listed on the endorsement of the LC and that the LC was not valid. Lenders claimed that the Citibank employee also informed them that no Certificate of Deposit existed although no mention had been made of the CD by Lenders, suggesting that Citibank was aware of the scheme prior to the conversation.

When Citibank failed to honor the fraudulent standby LC and after collection efforts had failed, Lenders sued Borrowers and Citibank. After claims against Citibank based on "breach of implied contract, breach of fiduciary duty, and breach of good faith and fair dealing" had been dismissed, Lenders filed an amended complaint alleging that Citibank had been negligent. When Citibank moved to dismiss the Amended Complaint, the U.S. District Court for the Eastern District of Pennsylvania, Pratter, J., granted the motion.

Lenders' rationale was that Citibank owed a duty to users of Citibank's electronic financial platform under a "business-invitee" theory of tort-law premises liability. However, Lenders did not present any facts which indicated that Citibank knew about the fraud prior to or during the transaction. After determining that Lenders gave "no compelling reason to ignore [the] complete lack of precedent" in attempting to "extend this premises liability doctrine beyond physical premises", the Judge granted Citibank's motion to dismiss.



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.