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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1997 LC CASE SUMMARIES No. 95-7961, 1997 U.S. App. LEXIS 9662 (2 nd Cir. 2 May 1997)
Topics:
Personal Jurisdiction; N.Y.C.P.L.R. - 301; N.Y.C.P.L.R. - 302.
Type of Lawsuit:
Beneficiary sued issuer for wrongful dishonor.
Parties:
Plaintiff/Beneficiary- National Sun Industries, Inc.
Defendant/Issuer- Dakhalia Commercial Bank (Cairo, Egypt)
Advising/Paying Bank- Bank Kreiss (Germany)
Counsel
For Plaintiff: Patrick V. Martin (Hill, Rivkins, Loesberg, O'Brien, Mulroy & Hayden)
For Defendant: Grant A. Hanessian (Baker & McKenzie)
Underlying Transaction:
Purchase of wheat by Egyptian buyer from US seller.
LC:
Commercial credit for US$ 5,600,000. Silent as to the UCP.
Decision:
U.S. District Court for the Southern District of New York, Martin, Jr., J., entered default judgment against issuer. Upon issuer's motion, Martin, Jr., J., vacated the default judgment and dismissed the complaint. The U.S. Court of Appeals for the Second Circuit, Newman, C.J., Meskill and Keenan, J., affirmed in an unsigned opinion.
Rationale:
Neither maintaining an account with a bank in New York nor authorizing a New York bank to reimburse a paying bank for payment on a letter of credit are sufficient to establish personal jurisdiction over non domiciliary issuer under New York law.
Article
Factual Summary:
To pay for the purchase of wheat, an Egyptian buyer caused the issuance of a letter of credit in favor of the US seller. Under its terms, presentation was to be made to the advising bank which was nominated to pay and authorized to claim reimbursement through a correspondent bank in New York. When the beneficiary made presentation to the bank, the issuer refused to authorize payment, and revoked the authority it had given the reimbursing bank.
Beneficiary then brought this action against issuer for wrongful dishonor in New York. Because the issuer neither answered the complaint nor appeared for trial, a default judgment was entered against it. Thereupon, issuer filed a motion to vacate the default judgment and dismiss the complaint for lack of personal jurisdiction. The court granted the issuer's motion.
On appeal, the beneficiary argued that the issuer was subject to personal jurisdiction under the applicable New York statute under two different theories. First, that the issuer satisfied the "doing business" requirement of N.Y.C.P.L.R. - 301 because the issuer maintained an active account with a New York bank. Second, that the issuer satisfied the "transaction of business" requirement of N.Y.C.P.L.R. - 302 because it had authorized a New York bank to reimburse the advising bank upon payment of the credit. The intermediate appellate court did not agree and affirmed the ruling of the trial court.
Legal Analysis:
1. Personal Jurisdiction: Doing Business: Based on case law to the effect that the maintenance of an active bank account in New York, without more, did not warrant a finding that a foreign corporation had a sufficient presence in the State of New York to satisfy the "doing business" requirement of New York's jurisdiction statute, the court ruled that the mere maintenance of an account, even if substantial, did not constitute "doing business" in New York.
2. Transaction of Business:New York law provides that a person transacting business in New York is subject to personal jurisdiction if its actions are purposeful and there is a substantial relationship between its acts and the plaintiff's claim. Without discussion, the court found that the authorization the issuer gave to a New York bank to reimburse the advising bank upon payment on the credit did not constitute purposeful activity and, therefore, concluded that the issuer was not transacting business in New York.
©1998 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
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 ICC or the other partners in DC-PRO.