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CITICORP INTL. TRADING CO. v. WESTERN OIL & REF. C

April 10, 1992

CITICORP INTERNATIONAL TRADING CO., INC., Plaintiff, against WESTERN OIL & REFINING COMPANY, INC., ROBERT A. ZANDER and KARIN ZANDER, Defendants and Third-Party Plaintiffs, - against - CITICORP INTERNATIONAL TRADING CO., INC., and CITIBANK, N.A., Third-Party Defendants.


The opinion of the court was delivered by: ROBERT W. SWEET

 SWEET, D.J.

 Plaintiff Citicorp International Trading Company, Inc. ("CITC") by way of this diversity action sought enforcement of a promissory note in the amount of $ 1,572,429, dated August 21, 1987 (the "Note"), executed by defendant Western Oil & Refining Company, Inc. ("WORC") and by defendants Robert A. Zander ("Zander") and Karin Zander ("Mrs. Zander") (collectively the "Zanders"). The Zanders counterclaimed and instituted a third-party claim against Citibank, N.A. ("Citibank") under the theory that CITC's corporate veil was pierced. The action was tried before the court, the Zanders appearing pro se. On the following findings and conclusions, judgment will be entered granting the relief sought in CITC's complaint and dismissing the Zanders' counterclaim and third-party complaint.

 This action is the culmination of the unhappy outcome of a series of anticipated oil transactions in 1987 and 1988 pursuant to which WORC was to purchase oil from the Nigerian National Petroleum Corporation ("NNPC") assisted by CITC, a trading company operated as a division of Citibank, for export from Nigeria to the United States and sale to third parties for anticipated profit. The relationship between CITC and WORC arose out of a Representative Agency Trading Agreement (the "RATA"), under which CITC was to act as WORC's representative agent to assist in WORC's efforts to purchase and sell its oil cargoes. The Note resulted from a certain failed transaction in which CITC incurred shipping and demurrage fees chargeable to the Zanders under the RATA. The subject of this action is the Zanders' liability on the Note as well as their counterclaims against CITC.

 This action, filed on August 1, 1988, has had more than its share of pretrial discovery motions, as well as some fourteen substantive or dispositive motions. Judgment was entered in default against WORC on July 23, 1990, for failure to appear by counsel to refile its stricken pleadings.

 The action was tried before the court from January 22, 1992 to January 27, 1992 and was considered fully submitted on March 3, 1992.

 I. The Facts

 CITC is a corporation organized under the laws of Delaware with its principal place of business at 399 Park Avenue in New York City. At all relevant times, CITC operated as a trading company and as an intermediary in international commercial transactions. It is a wholly-owned subsidiary of Citibank which is operated as a division of Citibank. A number of officers and employees serve both corporations.

 Citibank is a national banking association with its principal place of business at 399 Park Avenue in New York City. Citibank was brought into this action as a third-party defendant by the Zanders.

 The Zanders are individuals residing at 5301 Old Forge Circle, Raleigh, North Carolina. During all relevant times, the Zanders resided either at the above address or in Phoenix, Arizona and were officers, directors and shareholders of WORC. During relevant times, WORC was organized under the laws of the State of California, with its principal offices located at 400 Tanner Square, 700 East Jefferson, Phoenix, Arizona.

 Zander has a degree with honors from Dartmouth College and an MBA degree from Harvard University. He has served as director of public companies and has engaged in a number of business transactions, including the purchase of an oil refinery, real estate and auto dealership transactions.

 Mrs. Zander is a Phi Beta Kappa graduate of the University of Southern California and has a law degree from Yale University. Mrs. Zander served as an associate at Choate Hall & Stewart in Boston, as an assistant U.S. Attorney, and as a professor of law.

 The Zanders are well-educated, versed in business, and capable of understanding the documents at issue in this litigation.

 On December 13, 1985 members of the Congressional Black Caucus wrote to the President of the Republic of Nigeria recommending WORC as the first refinery in the United States owned and operated by Afro-Americans. In 1986, WORC entered into negotiations with the NNPC for the NNPC to supply oil for WORC to export from Nigeria. WORC obtained a "net-back" contract with the NNPC dated June 18, 1986, for 50,000 barrels per day, which Zander signed in his capacity as an officer of WORC. However, WORC was unable to obtain letters of credit and/or suitable purchasers for the oil under this contract.

 On January 13, 1987, WORC and CITC entered into the RATA, which designated CITC as a marketing representative of WORC with respect to Nigerian Oil. CITC was to assist WORC's efforts to purchase oil cargoes, to promote the sale of WORC's products, and to undertake negotiations with prospective purchasers on behalf of CITC. Section 2.3 of the RATA provided that WORC was to reimburse CITC for shipping or other direct expenses incurred by CITC on behalf of WORC, provided WORC had agreed in writing to the expenditure. CITC agreed not to circumvent the transactions undertaken.

 WORC signed a second contract with the NNPC on February 25, 1987, this time for 13,000 barrels of crude oil per day. The second NNPC contract required WORC to make a one million dollar "good faith" performance deposit to validate the contract. WORC borrowed funds in this amount from Citibank, for which Zander executed a personal guarantee and promissory note.

 CITC identified Phibro Energy, Inc. ("Phibro Energy"), a subsidiary of Salomon, Inc., as a potential purchaser of WORC's oil. In late April or early May 1987, WORC agreed to sell 1,400,000 barrels of NNPC oil to Phibro Energy, to be delivered on two separate vessels. The NNPC required a letter of credit from WORC, which WORC was unable to obtain. Therefore, WORC requested that Phibro Energy provide two separate letters of credit, one for each vessel.

 Phibro Energy opened two letters of credit on May 4, 1987, with WORC as named beneficiary. One, in the sum of approximately $ 12,560,000 for 700,000 barrels of oil, was a straight transferrable non-negotiable letter of credit, #CCF 5910, issued by Credit Commerciale de France, New York branch ("CCF"). The second letter of credit, in the amount of $ 12,460,000 for 700,000 barrels of oil, was also straight, transferrable and non-negotiable and was issued by Banque Brussels Lambert, New York branch ("BBL").

 Pursuant to written instructions from WORC, Citibank advised each credit into two separate transferred credits naming NNPC as second beneficiary. Under the first subsidiary letter of credit, Citibank advised the amount of $ 9,360,000 for 500,000 barrels through Nigerian International Bank, Lagos, Nigeria for further advice through Bank of Credit and Commerce International, Lagos. Citibank advised a second subsidiary letter of credit in the amount of $ 2,125,000 for 200,000 barrels of oil through Citibank (London) for further advice to Trade Development Bank, London.

 The division of each of the main credits into two subsidiary credits, and the advisement of each subsidiary credit through multiple banks, resulted in delays in transmission time, often taking a week or ten days.

 On May 14, 1987, in advising an amendment from CCF to change the tolerance from "approximately," which implies plus or minus 10% tolerance to the more restrictive 5% tolerance, i.e., "plus or minus 5%," Citibank sent advices containing numerical discrepancies. Instead of reading "amount is now $ 9,360,000 plus or minus 5%" the advice as originally transmitted stated "amount is now $ 9,360.00, plus or minus 5%" under one transferred credit and stated "amount is now $ 2,125.00 plus or minus 5%" rather than $ 2,125,000 plus or minus 5%" on the other transferred credit. Zander was aware in May of this error. Citibank sent an advice on May 21, 1987 correcting the amount on the first transferred credit to $ 9,360,000. The second transferred credit was corrected from $ 2,125.00 to $ 2,125,000 on June 17, 1987.

 Despite numerous amendments, no evidence was submitted to establish that the NNPC requested an amendment or clarification of the dollar amounts specified by the amendments at any time. After Citibank advised the May 14 amendments, the BBL credit was amended nine more times and the CCF credit eleven more times.

 On May 14, 1987, at the specific request of Douglas Moses of CITC, Zander, both personally and through his secretary, three times acknowledged in writing WORC's responsibility for shipping costs and demurrage and specifically agreed to reimburse CITC for the cost of chartering vessels to carry the anticipated deliveries of oil which CITC undertook in order to obtain an oil "stem" from NNPC.

 On June 9, 1987, WORC's agent, Ronald Shaw, in a handwritten note from Nigeria, requested an extension of the expiration date of the letters of credit. On June 23, 1987, NNPC offered WORC further quantities of oil but did not mention any problems with the letters of credit.

 A final amendment under each of the BBL and CCF credits was made on May 29 and advised by Citibank in New York on June 30. The amendments arrived in Nigeria an hour or two after noon, a deadline established by NNPC. At that time, NNPC "gave the oil away" to another purchaser.

 No evidence, either documentary or testimonial, was adduced to establish the reasons for the NNPC's failure to load either vessel awaiting at Nigeria. It was suggested that the Nigerians were unhappy with the favorable price received by the Zanders, that the letters of credit opened by Phibro Energy were part of a scam, or that NNPC was upset about the letters of credit.

 The Zanders knew that the oil must be shipped from Nigeria by ocean-going vessel and knew that the sale to Phibro Energy required shipping. CITC chartered two vessels on behalf of WORC for this purpose. When the vessels were not loaded in Nigeria, CITC was required to pay on WORC's behalf ship demurrage and cancellation charges. With respect to the failed venture, CITC eventually incurred and paid shipping and demurrage charges, cancellation charges and interest in a total amount of $ 1,567,000.

 Citibank and CITC initiated an investigation to review the issuance of the letters of credit and determined the nature and extent of the errors and amendments. Their report was produced to the Zanders in ...


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