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Note: To facilitate its purchase of two containers of “black tiger shrimp” from Kuliarchar Sea Food (Cox’s Bazar) Ltd. (Seller/Beneficiary), a Bangladeshi company, Echopack, Inc. (Buyer/Applicant) applied for and obtained a USD 558,720 “irrevocable, documentary letter of credit” from Soleil Chartered Bank (Issuer). It is unclear whether the LC was subject to practice rules. Subsequently, Mercantile Bank Ltd. (Nominated Bank), on behalf of Seller/Beneficiary, “sent the first SWIFT messages [to Issuer]…confirming that payment was required under the L/C.” Issuer, however, refused for several months to honor. Thereafter, Seller/Beneficiary sued Issuer, its parent company, Soleil Capitale Corporation (Parent), and the individual owner of Parent (collectively, Defendants) for wrongful dishonor.

Defendants moved to dismiss the complaint for lack of jurisdiction and forum non conveniens while Parent pursued a separate motion to be dismissed from the action. The trial court denied each motion and ordered Seller/Beneficiary to serve a copy of the decision and notice of its entry on Defendants. Defendants appealed. The Supreme Court of New York, Appellate Division, Renwick, Manzanet-Daniels, Tom, Mazzarelli and Webber, JJ., affirmed.

As to Defendants’ motion to dismiss for lack of jurisdiction the trial judge noted that, based on the allegations set forth in the complaint, Seller/Beneficiary had “adequately allege[d] facts that, if proven, stated a claim for alter ego under New York law.” The complaint alleged that the individual owner of Parent could “dominate and control” both Parent and Issuer as well as that Parent and Issuer shared the same office, phone number, employees and SWIFT code.

After noting several factors that a court may weigh to dismiss an action in its discretion based on forum non conveniens, the trial judge noted that Parent was registered in New York, that Issuer conducted business there and the individual owner was domiciled in New York. Moreover, the Judge noted that “the L/C was negotiated and issued in New York” and documents were to be presented to Issuer in New York.

Although Parent and the individual owner sought to be dismissed on the basis that they “did not sign a personal guaranty or any other separate acknowledgment that either intended to be individually and/or separately bound by the letter of credit transaction,” the trial judge disagreed, noting that the Defendants were “indistinguishable from one another.” The issue instead was whether Defendants were liable for having “used [Issuer] through fraud and deceit improperly to avoid the payment obligation under the L/C.”

On appeal, the appellate court unanimously affirmed the trial court on each denied motion for dismissal noting that Seller/Beneficiary’s “complaint sufficiently alleges facts which state a claim against [Parent]…so as to pierce defendant [Issuer]’s corporate veil and hold [Parent and individual owner] liable as alter egos of [Issuer], and that [D]efendants’ documentary evidence fails to conclusively refute these allegations.”

Subsequently, the Supreme Court of New York, Lebovits, J., issued an order addressing terms to which the parties stipulated regarding previously disputed discovery demands made by Seller/Beneficiary. Pursuant to the order, Defendants were required to respond by producing or answering in interrogatory form an extensive list of documentary and other requests. The order stated eighteen sweeping requests including production of “all documents concerning the Letter of Credit, including, but not limited to, the application form submitted by [Buyer/Applicant]; drafts of the Letter of Credit…indemnification agreements and payments, posting of bonds, [and] the delivery of the documents required under the Letter of Credit.” Defendants were also required to address in interrogatory form all board of director minutes related to the LC, all related SWIFT messages and information regarding personnel and processes regarding Defendants’ SWIFT system, and to otherwise “certify in a sworn statement” that certain requests had been previously fulfilled or that such documents do not exist. Interestingly, the final stipulation required Defendants to:

Produce all letters of credit issued by Defendants with [Buyer/Applicant] during the three (3) years preceding the issuance of the Letter of Credit in the Action. In connection with said production, [Seller/Beneficiary] shall produce, within 30 days of the entry of this Order, documents supporting an inference that [Buyer/Applicant] was engaged in fraudulent and/or improper business practices designed to extract price concessions from seafood exporters, such as [Seller/Beneficiary].

Defendants’ motion for a protective order and Seller/Beneficiary’s motion for default judgment were mutually withdrawn without prejudice.

Comment: It is unclear whether Nominated Bank added its confirmation to the LC, nor whether Issuer checked any presented documents for compliance with LC terms and conditions. Moreover, no reference was made to the default choice of law provisions of N.Y. U.C.C. Article 5-116 or, for that matter, to any section of U.C.C. Article 5.

[MJK]

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