Article

Topics: Fraud; Forged LCs

Prior History: Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d. 81 (2d Cir. 2013) [USA], noted in 2014 (finding that issuer's claim that documents establishing personal jurisdiction were forged was a question of fact inappropriate for disposition by summary judgment); 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 (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) [USA], noted in 2004

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 alleged failure to honor a USD 250 million letter of credit (LC). Beneficiary had previously obtained a default judgment from the same court in 2002 against Issuer but that judgment was unenforceable in Brazil because Beneficiary had not properly served process upon Issuer via letters rogatory. SWIFT was initially included as a defendant in the prior action but was dismissed in 2003. On learning that the default judgment was unenforceable, Beneficiary successfully moved to have the judgment vacated, re-filed the action, and properly served process.

Issuer moved to dismiss the 2011 complaint for lack of personal jurisdiction, supporting its motion 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 relevant SWIFT message had not been sent by an employee of the Issuer. Finding that the testimonial evidence presented by Issuer was "overwhelming", the U.S. 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. However, in a per curiam opinion the U.S. Court of Appeals for the Second Circuit overturned and remanded the case back to the District Court on the basis that forgery is a question of fact inappropriate for determination by summary judgment.

In 2014, Beneficiary filed a motion to compel Issuer to produce requested documents. Beneficiary also filed to vacate the dismissal of its prior action against SWIFT in order to compel it to produce requested documents.

Beneficiary hinted (without outright contending) that the LC had been advised by Chase Bank (Advising Bank) via SWIFT communications and introduced a declaration from an Advising Bank employee. Advising Bank's employee claimed to have received the SWIFT documents regarding the LC from her bank's communications department, thus bolstering Beneficiary's claim that the documents it requested from Issuer are or were, in fact, in existence.

However, Issuer argued that it could not produce documents that never existed, claiming that it never had any transactions with the Beneficiary prior to the litigation over the allegedly forged LC. Furthermore, Issuer claimed that the declaration of the Advising Bank's employee was hearsay, that Beneficiary's requests were "overly broad, ambiguous and vague and [seek] irrelevant information", and that the SWIFT message contained a disclaimer that the message was unauthenticated. As such, Issuer claimed the motion should be dismissed and that it should be entitled to attorney's fees.

The District Court, Fox, Mag. J., denied Beneficiary's motion on grounds that it was deficient both procedurally and factually, and issued a Report and Recommendation to deny Beneficiary's motion against SWIFT. It ruled in favor of Issuer's claims that the employee's declaration was hearsay and thus inadmissible and that Beneficiary's requests were inappropriate. It further recommended that Issuer be entitled to attorney's fees from the Beneficiary.

Beneficiary objected the Report and Recommendation and to two determinations also made by Magistrate Judge Fox: a sanction on Beneficiary for spoliation that precluded Beneficiary from using evidence from a destroyed computer and an obligation to produce a witness for a live deposition. Judge Wood reviewed these determinations and in a separate appeal also reviewed the Report and Recommendation.

Regarding the sanction on Beneficiary, Judge Wood noted that Beneficiary had a duty to preserve evidence. Furthermore, the Judge found in agreement with Magistrate Fox's findings that Beneficiary's attorney had breached this duty when he destroyed his computer when it crashed without either seeking a computer specialist's help in retrieving the computer's contents or informing the court, instead relying on documents relevant to the suit that had been printed before the crash. The computer likely contained data relevant to Issuer and metadata that could have cleared up the authenticity of the printed documents. The Judge also found that because of the destruction of the evidence, Issuer was entitled to the assumption that the lost data would have been relevant to Issuer's defense. Judge Wood, though in agreement with Magistrate Judge Fox's findings, ordered instead of a preclusion of evidence, a special jury instruction that will compel the jury to infer that Beneficiary destroyed evidence favorable to Issuer's claim that it the alleged transaction between the parties was forged.

Judge Wood also held, in agreement with Magistrate Judge Fox, that Beneficiary's motions to compel Issuer to produce evidence and to vacate SWIFT's dismissal are baseless so long as Beneficiary cannot introduce direct evidence that Issuer is committing fraud. The Court adopted the Report and Recommendation. The Court also upheld the determination that Beneficiary would pay Issuer's attorney's fees and the order compelling the live deposition of a witness.

[ALC/mjb]

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