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Note: American military supplier ACR Systems (Seller/Beneficiary), a Texas corporation, and Woong Kook (Applicant), an agent of the Defense Ministry of South Korea (Buyer), entered five contracts to provide custom military goods to Buyer. To assure payment, Applicant caused the Seoul, South Korean branch of Woori Bank (Issuer), a bank partially owned by the South Korean government with a Manhattan branch, to issue a letter of credit in favor of Seller/Beneficiary for USD 85,862.00. The LC was subject to UCP600 and URR725.

The LC required Seller/Beneficiary to present, among other documents, an inspection acceptance certificate from Buyer. A subsequent amendment to the LC specified that Applicant would forward the acceptance certificate to Seller/ Beneficiary within seven days of the date it was issued by Buyer, and that its non-receipt by Seller/Beneficiary would be a “cause to draw against the letter of credit.”

When Seller/Beneficiary presented the required documents without the inspection acceptance certificate seeking payment of USD 85,862.00, Issuer only paid USD 28,099.00 after “applying deductions demanded by [Applicant] and [Buyer]”. Seller/Beneficiary initially sued Issuer in New York but Issuer removed the case to federal court and thereafter sought to dismiss the case under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Seller/Beneficiary then sought to file an amended complaint for wrongful dishonor, civil conspiracy, and punitive damages. The judge dismissed the civil conspiracy and punitive damage claims while denying Issuer’s statute of limitations challenge. Seller/Beneficiary thereafter moved for leave to file a second amended complaint to include wrongful dishonor; fraud; conspiracy to commit fraud; aiding and abetting fraud; fraudulent concealment; conspiracy to commit fraudulent concealment; conversion; conspiracy to commit conversion; and aiding and abetting conversion. The United States District Court for the Southern District of New York, Keenan, J., denied the motion to amend the complaint and dismissed all claims with prejudice except that of wrongful dishonor.

The Judge noted that the alleged fraud claims failed to meet the heightened pleading standard provided by Federal Rule of Civil Procedure 9(b) because the complaint did not show that statements made by the Issuer’s representative were false or that the Issuer’s representative knew Issuer would refuse to make further payments on the LC. The fraudulent concealment allegation also failed to meet the same heightened pleading standard because the complaint did not identify “who at [Issuer] was responsible for the failure to disclose” nor did the amended complaint “provide the context of the omission or describe what [Issuer] obtained as a result of its nondisclosure.” The Judge concluded that the conversion claim failed because the complaint did not allege that Issuer exercised dominion over the goods; nor did the complaint allege underlying torts required to sustain claims for civil conspiracy or aiding and abetting. The Judge allowed the wrongful dishonor claim to proceed and ordered Issuer to file a timely answer.

[WMIV/MJK]

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