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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1999 LC CASE SUMMARIES 50 F. Supp. 2d 1215; 1999 U.S. Dist. LEXIS 8827 [U.S.A.]
Topics:
Procedure; Federal Jurisdiction; Abstention
Type of Lawsuit:
Beneficiary sued the issuer for wrongful dishonor.
Parties:
Plaintiff/Beneficiary/Insurer- Nobel Insurance Group (Counsel: Jeffrey E. Friedman, Joe L. Leak of Birmingham, Alabama)
Defendant/Issuer- First National Bank of Brundidge (Alabama, U.S.) (Counsel: Joseph C. Espy, III and Suzanne D. Edwards of Montgomery, Alabama)
Applicants- Henry T. Strother, Jr. and William F. Hamrick
Insured- Western American Transportation Services, Inc.
Underlying Transaction:
Collateral for Amounts of Deductibles under insurance policies.
LC:
Standby LC. No indication of amount or whether subject to practice rules.
Decision:
The U.S. District Court for the Middle District of Alabama, DeMent, J, denied the issuer's Motion to Dismiss or Stay the Action.
Rationale:
No exceptional circumstances justifying abstention by the federal court existed.
Factual Summary:
Article
Factual Summary: To assure that the insured would pay deductibles under the insurance policy, the insurer required collateral and applicants caused bank to issue a standby LC on behalf of insurer. When the policy expired, the insured owed the insurer large sums for uncollected deductibles. Accordingly, the beneficiary/insurer drew on the standby. The issuer dishonored and the beneficiary sued for wrongful dishonor and breach of contract. The issuer joined the applicants as third parties to the action.
One of the applicants, Hamrick, brought a separate state action alleging that "'it was never intended that Hamrick would be liable to the Bank on any letter of credit,' and 'Hamrick never signed a note, request, loan agreement, guaranty agreement, or any other document with the Bank relating to the Nobel letter of credit'" and seeking a declaratory judgement that he is not liable to the bank as well as other matters related to the liability of the insured to the insurer and the liability of the bank to the insurer. Discovery commenced in the state action. In light of this state action, the issuer moved to dismiss or stay the federal action since the state action was more comprehensive than the federal action. The trial court denied the motion.
Legal Analysis:
1. Procedure: Abstention of Federal Courts: The court noted that the doctrine of federal abstention where parallel actions were underway in state courts applied in the interest of judicial administration where there were present exceptional reasons justifying abstention. In reviewing the factors to be considered, the court noted that the greater discovery progress in the state court was marginal, that nothing prevented additional parties from being added to the federal action, that the state law issues were not particularly complex, and that the federal forum was as adequate as the state forum for adjudicating the matter. Finding no exceptional circumstances, the court declined to abstain.
©2000 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.