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Note: To assure payment of a contract to manufacture a custom automated system, Switch Bulb Co. (Buyer/Applicant) obtained a commercial LC for USD 2,858194.50 from Wells Fargo Bank (Issuer) in favor of Ixmation, Inc. (Seller/Beneficiary).

Buyer/Applicant and Seller/Beneficiary specified in the contract that the LC would expire on 1 October 2014. Furthermore, the contract contained a payment schedule contingent on Seller/Beneficiary's completion of certain production milestones.

After Seller/Beneficiary completed two of the milestones, it made two drawings on the LC, leaving a remaining USD 1,022,096.70 that it intended to draw after the next stage of production was completed. Subsequently, Buyer/Applicant informed Seller/ Beneficiary of its precarious financial status and potential liquidation and requested a suspension in production prior to the completion of the next stage, which would have entitled Beneficiary to draw on the remaining amount of the LC. The relationship between the parties subsequently deteriorated and Seller/Beneficiary filed for arbitration.

Following a series of delays in the arbitration process caused by both parties and Buyer/Applicant's assignment for the benefit of creditors, Seller/ Beneficiary sought a temporary restraining order in the form of an equitable lien on the LC on September 5, 2014. The court allowed the temporary restraining order until a hearing on Seller/Beneficiary's requested preliminary injunctive relief could be held. At that time, Seller/Beneficiary sought an injunction to continue the expiration of the LC and prohibit Buyer/ Applicant from drawing on the funds in the LC could be held.

The United States District Court for the Northern District of Illinois, Lee, J., denied Seller/Beneficiary's motion for preliminary injunctive relief on the grounds that its delay in arbitration and in filing a motion for a temporary restraining order less than one month before the LC's expiration failed to demonstrate that irreparable harm would occur without the injunction.

The Judge acknowledged but declined to comment on the legal question not immediately relevant to the injunction motion of whether the equitable lien would extend to the balance of funds in the hands of the Issuer after the expiration date. Rather, the Judge encouraged the parties to settle the dispute regarding whether Seller/Beneficiary was entitled to the remaining funds in the LC in its ongoing arbitration proceedings.

[ALC]

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This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.