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AMERICAN BELL INTL., INC. v. ISLAMIC REPUBLIC OF I

August 4, 1979

American Bell International, Inc., Plaintiff,
v.
The Islamic Republic Of Iran, Bank Iranshahr and Manufacturers Hanover Trust Company, Defendants.



The opinion of the court was delivered by: MACMAHON

Plaintiff American Bell International Inc. ("Bell") moves for a preliminary injunction pursuant to Rule 65(a), Fed.R.Civ.P. and the All Writs Act, 28 U.S.C. ยง 1651, enjoining defendant Manufacturers Hanover Trust Company ("Manufacturers") from making any payment under its Letter of Credit No. SC 170027 to defendants the Islamic Republic of Iran or Bank Iranshahr or their agents, instrumentalities, successors, employees and assigns. We held an evidentiary hearing and heard oral argument on August 3, 1979. The following facts appear from the evidence presented:

The action arises from the recent revolution in Iran and its impact upon contracts made with the ousted Imperial Government of Iran and upon banking arrangements incident to such contracts. Bell, a wholly-owned subsidiary of American Telephone & Telegraph Co. ("AT & T"), made a contract on July 23, 1978 (the "Contract") with the Imperial Government of Iran Ministry of War ("Imperial Government") to provide consulting services and equipment to the Imperial Government as part of a program to improve Iran's international communications system.

 The Contract provides a complex mechanism for payment to Bell totalling approximately $ 280,000,000, including a down payment of $ 38,800,000. The Imperial Government had the right to demand return of the down payment at any time. The amount so callable, however, was to be reduced by 20% Of the amounts invoiced by Bell to which the Imperial Government did not object. Bell's liability for return of the down payment was reduced by application of this mechanism as the Contract was performed, with the result that approximately $ 30,200,000 of the down payment now remains callable.

 In order to secure the return of the down payment on demand, Bell was required to establish an unconditional and irrevocable Letter of Guaranty, to be issued by Bank Iranshahr in the amount of $ 38,800,000 in favor of the Imperial Government. The Contract provides that it is to be governed by the laws of Iran and that all disputes arising under it are to be resolved by the Iranian courts.

 Bell obtained a Letter of Guaranty from Bank Iranshahr. In turn, as required by Bank Iranshahr, Bell obtained a standby Letter of Credit, No. SC 170027, issued by Manufacturers in favor of Bank Iranshahr in the amount of $ 38,800,000 to secure reimbursement to Bank Iranshahr should it be required to pay the Imperial Government under its Letter of Guaranty.

 The standby Letter of Credit provided for payment by Manufacturers to Bank Iranshahr upon receipt of:

 
"Your (Bank Iranshahr's) dated statement purportedly signed by an officer indicating name and title or your Tested Telex Reading: (A) "Referring Manufacturers Hanover Trust Co. Credit No. SC170027, the amount of our claim $ represents funds due us as we have received a written request from the Imperial Government of Iran Ministry of War to pay them the sum of under our Guarantee No. issued for the account of American Bell International Inc. covering advance payment under Contract No. 138 dated July 23, 1978 and such payment has been made by us' . . .."

 In the application for the Letter of Credit, Bell agreed guaranteed by AT & T immediately to reimburse Manufacturers for all amounts paid by Manufacturers to Bank Iranshahr pursuant to the Letter of Credit.

 Bell commenced performance of its Contract with the Imperial Government. It provided certain services and equipment to update Iran's communications system and submitted a number of invoices, some of which were paid.

 In late 1978 and early 1979, Iran was wreaked with revolutionary turmoil culminating in the overthrow of the Iranian government and its replacement by the Islamic Republic. In the wake of this upheaval, Bell was left with substantial unpaid invoices and claims under the Contract and ceased its performance in January 1979. Bell claims that the Contract was breached by the Imperial Government, as well as repudiated by the Islamic Republic, in that it is owed substantial sums for services rendered under the Contract and its termination provisions.

 On February 16, 1979, before a demand had been made by Bank Iranshahr for payment under the Letter of Credit, Bell and AT & T brought an action against Manufacturers in the Supreme Court, New York County, seeking a preliminary injunction prohibiting Manufacturers from honoring any demand for payment under the Letter of Credit. The motion for a preliminary injunction was denied in a thorough opinion by Justice Dontzin on March 26, 1979, and the denial was unanimously affirmed on appeal by the Appellate Division, First Department.

 On July 25 and 29, 1979, Manufacturers received demands by Tested Telex from Bank Iranshahr for payment of $ 30,220,724 under the Letter of Credit, the remaining balance of the down payment. Asserting that the demand did not conform with the Letter of Credit, Manufacturers declined payment and so informed Bank Iranshahr. Informed of this, Bell responded by filing this action and an application by way of order to show cause for a temporary restraining order bringing on this motion for a preliminary injunction. Following argument, we granted a temporary restraining order on July 29 enjoining Manufacturers from making any payment to Bank Iranshahr until forty-eight hours after Manufacturers notified Bell of the receipt of a conforming demand, and this order has been extended pending decision of this motion.

 On August 1, 1979, Manufacturers notified Bell that it had received a conforming demand from Bank Iranshahr. At the request of the parties, the court held an evidentiary hearing on August 3 on this motion for a preliminary injunction.

 Criteria for Preliminary Injunctions

 The current criteria in this circuit for determining whether to grant the extraordinary remedy of a preliminary injunction are set forth in Caulfield v. Board of Education, 583 F.2d 605, 610 (2d Cir. 1978):

 
"(T)here must be a showing of possible irreparable injury And either (1) probable success on the merits Or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation And a balance of hardships tipping ...

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