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Note: To facilitate the sale of a cargo of urea, Radha International Corporation (Buyer/Applicant) applied for and obtained a USD 345,000 letter of credit issued by Soleil Chartered Bank (Issuer) in favor of Shandong Yuyuan Logistics Company, Inc. (Seller/Beneficiary). The letter of credit required presentation of a bill of lading, among other documents, although the opinion is silent on whether the LC was subject to any practice rules. After Seller/Beneficiary presented documents to Issuer, Issuer dishonored citing a discrepancy and stated that it would “hold the Documents until receipt of ‘disposal instructions.’” Following demands by Seller/Beneficiary for either payment or return of the documents, Issuer informed Seller/Beneficiary that due to Buyer/Applicant’s inability to “pay ‘taxes, duties, shipment costs’”, Issuer had “paid [USD]45,000 on behalf of [Buyer/Applicant] and took ownership of the Cargo.”

Issuer informed Seller/Beneficiary that it was storing the goods and attempting to sell the goods on Seller/Beneficiary’s behalf; Seller/Beneficiary alleged, however, that Issuer had already sold the cargo, paid Seller/Beneficiary USD 106,000, but otherwise “failed to provide an accounting or disclosure of the underlying sale or transactions, or the outstanding [USD]238,080” of the original cargo value. Subsequently, Seller/Beneficiary sued Issuer for breach of contract; unjust enrichment; breach of fiduciary duty; failure to provide an accounting; and for deceptive acts in violation of state law. Issuer moved to dismiss the complaint for lack of subject matter jurisdiction, insufficient service of process and for failure to state a claim. The United States District Court for the Southern District of New York, Sweet, J., dismissed the complaint.

The Judge reviewed the law on federal subject matter jurisdiction and the adequacy of the complaint to sustain the same against a motion to dismiss. That inquiry turns on whether the complainant has asserted that such jurisdiction exists and is demonstrated by a preponderance of the evidence. Diversity jurisdiction requires that the amount in controversy be greater than USD 75,000 and that the action is between citizens of different states. The Judge noted precedent holding that diversity jurisdiction is “absent where there are foreign parties on both sides of the case.” It was “uncontested” that Seller/Beneficiary was a Chinese entity and that Issuer was registered in the Union of Comoros. While Issuer did have an office in New York, Seller/Beneficiary did not allege that Issuer’s principle place of business was New York. Accordingly, the Judge dismissed the complaint due to a lack of complete diversity.

[MJK]

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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.