Article

Note: As part of a purchase agreement between Minnesota Steel Industry LLC (Subsidiary) and Essar Steel Holdings Ltd. (Applicant), Applicant applied for a USD 6 million standby LC from Bank of India, N.Y. Branch (Issuer) in favor of the State of Minnesota (Principal/Beneficiary). In applying for the standby LC, referred to as the “SLC Agreement”, Applicant was bound to “reimburse and indemnify” Issuer for all amounts paid under the standby LC. In that same process, Applicant also entered into a security agreement with the Issuer, depositing a USD 1.5 Million certificate of deposit with Issuer. Applicant sought and received yearly extensions of the SLC Agreement and the standby LC from Issuer for seven years. When Principal/Beneficiary demanded payment of USD 6 million, Issuer honored the demand; thereafter, Applicant failed to reimburse Issuer pursuant to the SLC Agreement.

Issuer then sued Applicant for breach of the SLC Agreement. Subsequently, Applicant filed a motion to dismiss, arguing that the New York Court lacked personal jurisdiction over Applicant, as Applicant was not incorporated in New York, nor had it done purposeful business there. Issuer countered that, since Applicant transacted business in New York and contracted with an entity based in New York, it would be bound by New York’s long-arm jurisdiction through New York Civil Practice Law and Rules (CPLR)§ 302.The New York Supreme Court, 1st Judicial District, Civil Term, Scarpulla, J., denied Applicant’s motion to dismiss.

New York’s long arm statute provides that a defendant may be subject to the personal jurisdiction of its courts when “sufficient activities” are transacted within the state, and the claims “arise from those transactions”. The Judge found that the transactions of Applicant were within New York’s long arm statute because the initial transaction led to a continuing relationship between Applicant and Issuer, as shown by the negotiations required for the seven SLC Agreement extensions that Applicant sought and received. Applicant had reached into New York to contact Issuer, had negotiated for the extensions of the SLC Agreement, which stated on the first page that it was executed in New York. Finally, because Issuer’s claims were directly related to Applicant’s SLC Agreement in New York, the Judge ruled that the court had personal jurisdiction over Applicant.

[JPJ]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.