entitled to payment on the Letter of Credit as a matter of law, plaintiff's motion for summary judgment is granted. Defendant's motion for summary judgment is denied.
The material facts surrounding the transaction at issue in this lawsuit are undisputed. In October 1982, Ashford Laboratories, Inc. ("Ashford"), a New Jersey corporation, contracted to sell to a Nigerian importer, Mabson Pharmaceuticals, Ltd. ("Mabson"), cold capsules for $ 32,265. In order to effect payment, Mabson applied for an irrevocable letter of credit with defendant, a government owned bank, Savannah Bank of Nigeria (the "Bank"). On the reverse side of the Application are printed certain "General Terms & Conditions", including one which will be discussed in further detail below, which reads: "This Letter of Credit is subject to the usual terms and conditions operating in the center where the Credit be established." (Exh. A to Aff. of Jeffrey Nicholas, Sept. 24, 1992).
Subsequent to the submission of the Application to the Bank by Mabson, Bank America International ("Bank America") advised Ashford that a letter of credit known as L-82493 in the amount of $ 32,265, payable in New York, in United States dollars, had been established by the defendant in Ashford's favor. (Exh. A to Aff. of Frank Nicholas, Sept. 24, 1992). The Letter of Credit is a two-page document, and is dated November 1, 1982. (Exh. B to Aff. of Frank Nicholas, Sept. 24, 1992). The Letter of Credit provides that it is subject to the Uniform Customs and Practice for Documentary Credits, 1974 Revision, International Chamber of Commerce Publication No. 290 (the "UCP"). (Exh. C to Aff. of Frank Nicholas, Sept. 24, 1992).
After the Letter of Credit was established and in reliance thereon, Ashford shipped the pharmaceuticals to Mabson. Ashford presented conforming documents in strict compliance with the Letter of Credit on or about November 30, 1982. Each document specifically identified in the Letter of Credit was submitted by Ashford.
The Bank approved the Letter of Credit for payment on December 20, 1982. Both the Application and the Letter of Credit made clear that due to Nigeria's foreign exchange controls, a Form M would have to be filed by the importer, Mabson, through the defendant. A Form M is an application directed to the Central Bank to purchase foreign exchange. Defendant complied with this requirement on January 20, 1983, with the request that "the Foreign Currency should be paid to Bank of America, New York". The record suggests that Mabson also complied with related procedures regarding the Form M.
The Bank failed to pay on the Letter of Credit, claiming that it was unable to remit United States dollars to Bank America due to the failure of the Central Bank of Nigeria to provide foreign exchange. A June 8, 1983 cable from the Bank advised Bank America that it could negotiate the documents for the Letter of Credit but that Bank America would not be reimbursed by defendant until foreign exchange cover was made available. Similar cables were sent by defendant to Bank America on February 21, 1984, and January 15, 1985. Bank America, justifiably, has not negotiated the payment of the Letter of Credit. Significantly, the defendant has admitted that it would like to pay the Letter of Credit, and has offered to do so in Naira, the Nigerian currency. Plaintiff has rejected that offer.
Sometime subsequent to defendant's acceptance of the Letter of Credit, the Government of Nigeria engaged in a program to reschedule the payment of foreign debt, referred to as the "refinancing exercise". Defendant contends that as part of that refinancing exercise, Nigeria required, as a condition to payment on the Letter of Credit, that Ashford submit a claim form to Chase Manhattan Bank. Defendant further avers that at least as early as April 15, 1985, Ashford received a document entitled "The Central Bank of Nigeria - Circular dated 18th April, 1984", which gave notice that creditors must lodge claims with Chase Manhattan Bank to have debts paid by the Central Bank. Ashford never submitted any such claim form. Defendant asserts that due to Ashford's failure to submit the required document, the conditions of the Letter of Credit were not strictly complied with and the Bank is not required to honor the Letter of Credit.
Two other sets of facts should be noted at this point. In a letter to Mabson dated October 5, 1990, defendant acknowledged receipt of payment from Mabson for the Letter of Credit, and stated that "we have not been able to remit same to the exporters [i.e. Ashford] due to a non-provision of the required foreign exchange cover by the Central Bank of Nigeria." (Exh. H to Aff. of Frank Nicholas, August, 1992). This indicates both that refusal to release funds is not due to any withholding of the money by the bank's customer, and furthermore, that the reason for the refusal is non-provision of foreign exchange, as stated in the cables to Bank America, and not any failure on Ashford's part to strictly comply with the terms of the Letter of Credit.
Finally, we take note of the facts regarding the assignment of the proceeds of the Letter of Credit by Ashford to Optopics, the plaintiff in this action. Ashford assigned to the plaintiff the right to receive the proceeds payable under the Letter of Credit by a document executed in March, 1992, effective February 20, 1990, as part of a settlement of various disputes between Ashford and plaintiff. From 1983 until approximately March, 1992, Ashford and plaintiff were related parties under common control and ownership. This assignment is relevant to the defendant's argument that plaintiff lacks standing to pursue this claim.
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate if the supporting evidence demonstrates that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law. The Court does not resolve disputed issues of fact, but rather, resolving any ambiguities and drawing all reasonable inferences against the moving party, assesses whether genuine issues of material fact remain for the trier of fact. See, e.g. Knight v. United States Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 94 L. Ed. 2d 762, 107 S. Ct. 1570 (1987).
The Court heard oral argument on the defendant's motion for summary judgment on September 3, 1992. At that argument, and in the papers which defendant subsequently filed in opposition to plaintiff's later filed cross-motion for summary judgment, defendant appears to abandon certain of the arguments raised in its first moving papers. However, on the chance that defendant did not intend to concede these defenses, the most promising ones will be addressed.
A. Choice of Law/Standing:
Defendant argues that Nigerian law should be applied to this action, and that under Nigerian law, the assignment of the proceeds of the letter of credit is invalid and plaintiff therefore lacks standing to sue.
Defendant makes a number of different arguments concerning why Nigerian law should apply, but fails to convince the Court either that Nigerian law applies, or that there is actually a conflict between New York law and Nigerian law.
Defendant argues that because paragraph seven of the General Terms and Provisions on the Application for the Letter of Credit states that "this Letter of Credit is subject to the usual terms and conditions operating in the center where the Credit be established," the law of Nigeria applies to the Letter of Credit. As will be discussed more fully below, even if this were the correct interpretation of that provision, it would apply only to the Application, which is the contract between Mabson and defendant. It has no impact at all on the contract at issue in this suit, which is the Letter of Credit between plaintiff's assignor and the defendant.
The Letter of Credit itself does not provide which law will apply, although it states that the Letter of Credit is subject to the UCP. On the issue of assignability of the proceeds of a letter of credit, Article 47 of the UCP provides that:
The fact that a credit is not stated to be transferable shall not affect the beneficiary's rights to assign the proceeds of such credit in accordance with the provisions of the applicable law.
The UCP differentiates between transfer of a letter of credit, which would entail transferring the duty to deliver the documents to the bank, and merely assigning the proceeds of a letter of credit, without any concomitant obligation of performance. The assignment to plaintiff was clearly the latter, as defendant concedes that Ashford had already submitted all the documents expressly called for by the Letter of Credit, and the assignment took place some seven years afterwards.
In Algemene Bank Nederland, N.V. v. Soysen Tarim Urunleri Dis Ticaret Ve Sanayi, 748 F. Supp. 177, 182 (S.D.N.Y. 1990), a case interpreting the analogous provision in the 1983 revision of the UCP, the court ruled that the issuing bank did not have to "accept" an assignment of proceeds for such an assignment to be effective.
By extension, we find that under the UCP there is no need for prior notice to the issuing bank to effect an assignment of proceeds. This is logical, because an assignment of proceeds is merely an assignment of rights, and not of obligations; it should be irrelevant both to the issuing bank and to the purchaser who receives the proceeds, as long as the original beneficiary is still responsible for the delivery of the documents.
Returning to the choice of law question more generally, "New York has accepted a grouping of contacts approach which gives to the place having the most interest in the problems paramount control over the legal issues arising out of contracts." In re Allstate Insurance Company, 178 A.D.2d 899, 577 N.Y.S.2d 936, 938 (3d Dept. 1991). In this case, Ashford, a United States corporation, contracted for United States dollars to be paid on a letter of credit in New York. In similar situations, courts in New York have ruled that New York has the greatest interest in the litigation, and that New York law applies.
The case most closely on point is J. Zeevi and Sons, Ltd v. Grindlays Bank (Uganda) Limited, 37 N.Y.2d 220, 371 N.Y.S.2d 892, 333 N.E.2d 168, cert. denied, 423 U.S. 866, 46 L. Ed. 2d 95, 96 S. Ct. 126 (1975). In that case, a letter of credit was issued by a Ugandan bank in favor of an Israeli company, to be paid in United States dollars at a bank in New York. After the letter of credit was established, the Bank of Uganda, acting under authority derived from a Ugandan exchange control regulation, notified the defendant bank that foreign exchange allocations in favor of Israeli companies should not be paid. The defendant then informed the New York bank not to negotiate the letter of credit.
A lawsuit followed, and the defendant argued that under Ugandan law, the complaint should be dismissed. The court ruled that the facts established that the cause of action arose in New York, and that furthermore, New York had the greatest interest in the outcome of the case and its law would apply. The court stated, at pp. 898-899:
In this instance, New York was the locus of repudiation, whereas it should have been a site of payment. The provision respecting reimbursement in New York was an integral part of that for which the parties bargained, it was not a discrete obligation . . . The value to those in commerce of having a place at a financial capital where funds can be obtained on a simple letter of credit, away from a relatively small bank in an undeveloped country of uncertain political stability, is obvious.
Regarding the choice of law, the Zeevi court ruled:
New York has an overriding and paramount interest in the outcome of this litigation. It is a financial capital of the world, serving as an international clearinghouse and market place for a plethora of international transactions . . . A vast amount of international letter of credit business is customarily handled by certain New York banks whose facilities and foreign connections are particularly adaptable to this field of operation. The parties, by listing United States dollars as the form of payment, impliedly accepted these facts and set up procedures to implement their trust in our policies. In order to maintain its preeminent financial position, it is important that the justified expectations of the parties to the contract be protected. Since New York has the greatest interest and is most intimately concerned with the outcome of this litigation, its laws should be accorded paramount control over the legal issues presented.
This reasoning was endorsed by the Second Circuit in Bank of Cochin, Limited v. Manufacturers Hanover Trust Company, 612 F. Supp. 1533 (S.D.N.Y. 1985), aff'd., 808 F.2d 209 (2d Cir. 1986). In that case, the letter of credit issued by Bank of Cochin expressly provided that it was subject to the UCP, and it was to be paid in United States dollars from a New York bank. The court, noting that the letter of credit was silent as to governing law, rejected the contention that the law of India applied and, citing to Zeevi, held that New York law applied.
In the face of these New York cases, the defendant argues that a recent decision of the Ninth Circuit, Chuidian v. Philippine National Bank, et al., 976 F.2d 561 (9th Cir. 1992), should govern our decision on choice of law. Aside from the obvious fact that a decision of that circuit is not binding upon this Court, that case, and the New York cases it cites, deal with very different factual scenarios.
In Chuidian, the question was whether a letter of credit should be enforced where performance was illegal in the place of issuance, but legal in the designated place of payment. The case arose after the change of government in the Philippines, and the letter of credit was part of a settlement between the plaintiff and Ferdinand Marcos. The government of Corazon Aquino suspected that the settlement had been entered into by Marcos to pay off the plaintiff for not exposing illegal activity by Marcos. While an investigation was pending, the government prohibited the Philippine bank from approving the letter of credit, which was to have been paid in Los Angeles.
The Chuidian court was addressing a very different situation than the one before this Court: what law do you apply when performance is illegal in the place of performance. To answer that question, the Ninth Circuit had to determine where the place of performance was, and since most of the acts surrounding the letter of credit took place in the Philippines, the court found that to be the place of performance. Since the Philippine government's order made performance of the contract illegal, the Ninth Circuit did not enforce the letter of credit. Furthermore, although the court did not expressly say so, under the "greatest interest" test, the Philippines could certainly be found to have a very serious interest in the legality of that particular letter of credit under the circumstances.
This is simply not the situation here. Performance on this Letter of Credit is legal in both the place of issuance, Nigeria (as evidenced by defendant's willingness to pay on the Letter of Credit in Nigerian currency) and in the place of payment, New York. Although the Nigerian government seeks to enforce its exchange controls, there is no allegation of any illegality in the underlying transaction. Therefore, the "place of performance" analysis employed by the Ninth Circuit is not appropriate in this case.
With regard to the assignability of the Letter of Credit, the defendant has not convinced the Court that a conflict between the law of Nigeria and the law of New York exists. The defendant has cited no Nigerian caselaw,
but merely asserts that "the Bank has a right to choose its obligee." This statement leads the Court to believe that defendant is confusing transfer of the Letter of Credit and assignment of the proceeds of the Letter of Credit. Defendant quotes Harfield, Bank Credits and Acceptances, 5th Ed. 1974, pp. 180-181, for the proposition that "the courts have pretty generally held that a letter of credit in favour of a specific beneficiary is non-assignable." Aside from the fact that Harfield is certainly not discussing Nigerian law, it is also clear that in that section of his treatise, Harfield is explaining transfer, and not true assignment. Referring to article 46 of the UCP, which covers transfer, Harfield discusses the fact that the purchaser and issuing bank must be satisfied that the new beneficiary will deliver the required documents. In an assignment of proceeds, the new beneficiary does not inherit that obligation.
For all the foregoing reasons, we find that New York law applies to the transaction. In so far as the letter of credit law of New York and Nigeria do not differ, this finding has little impact. As regards the assignability of the proceeds of a letter of credit, under New York law, the Court will enforce the provision of the UCP, United Bank, Ltd. v. Cambridge Sporting Goods Corp., 41 N.Y.2d 254, 392 N.Y.S.2d 265, 269, 360 N.E.2d 943 (1976). Under the UCP and the reasoning of Algemene, supra, the assignment was proper and plaintiff has standing.
B. Forum non conveniens:
Defendant argues that the Southern District of New York is not a convenient forum for this litigation, relying mainly on the "private interest" ground that witnesses and documents are in Nigeria. However, the Court can find no justification for live witnesses as there is no dispute of fact as to which the credibility of testimony is at issue. Likewise, there are no further bank records which the Court can foresee as necessary to the resolution of this case.
It is significant that a very similar motion to dismiss on forum non conveniens grounds made by defendant was denied in Hatzlachh Supply Inc. v. Savannah Bank of Nigeria, 649 F. Supp. 688 (S.D.N.Y. 1986). In Hatzlachh, Judge Tenney found that Nigeria was not an adequate alternative forum, because even if plaintiff were to win, due to Nigeria's strict currency controls, it would not be able to take its award out of Nigeria, even in Naira. Since this Court has found that New York law applies, the "public interest" factors do not weigh in favor of dismissal on forum non conveniens grounds either.
We find that the Southern District of New York is a convenient and proper forum for this litigation.
C. Act of State:
Defendant argues that the Nigerian exchange controls are governmental policy, and that any adjudication by this Court would be an interference with a sovereign act of state. Although we find that the act of state doctrine is not implicated, it is a claim which is of the utmost seriousness and will be addressed fully.
The act of state doctrine recognizes both that the laws of nations as applied within their own borders are sovereign and should not be passed upon by our courts, and that the judiciary must be restrained from rendering decisions which will affect the United States' foreign policy, a sphere of power constitutionally assigned to the executive and legislative branches. "The act of state doctrine declares that a United States court will not adjudicate a politically sensitive dispute which would require the court to judge the legality of the sovereign act of a foreign state." International Ass'n of Machinists v. OPEC, 649 F.2d 1354, 1358 (9th Cir. 1981), cert. denied, 454 U.S. 1163, 71 L. Ed. 2d 319, 102 S. Ct. 1036 (1982).
A prerequisite for the application of the act of state doctrine is that the act in question is one which takes effect entirely within the boundaries of the sovereign nation. Where this is not the case, our courts will give extraterritorial effect to the law of another nation, based on comity, only where it does not conflict with the laws and policies of the United States.
Defendant ignores a number of Second Circuit cases which indicate the nature of the pertinent inquiry in determining whether the application of Nigeria's exchange control regulations to the Letter of Credit takes place entirely within the boundaries of Nigeria.
In Allied Bank Int'l v. Banco Credito Agricola, 757 F.2d 516 (2d Cir. 1985), the plaintiff brought an action to recover on promissory notes issued by three Costa Rican banks wholly owned by the Government of Costa Rica, which were payable in United States dollars, in New York. The banks defaulted on the notes solely due to the Costa Rican government's suspending all external debt payments. The court explained that the primary concern in applying the act of state doctrine is whether "adjudication would embarrass or hinder the executive in the realm of foreign relations," and that the rule is to be applied flexibly on a case by case basis. 757 F.2d at 521.
The Second Circuit in Allied held that the applicability of the act of state doctrine depends on the situs of the debt, defined as the right to receive repayment from the banks in accordance with the loan agreements. The court viewed the Costa Rican government's actions in extinguishing plaintiff's right to receive payment as a "taking", and reasoned that if the taking occurred within the foreign sovereign's territory, then the act of state doctrine would prohibit the courts of this country from adjudicating the matter. The court said that locating the debt "depends in large part on whether the purported taking can be said to have 'come to complete fruition within the dominion of the [foreign] government'". 757 F.2d at 521.
In applying that standard, the Allied court held that "Costa Rica could not wholly extinguish the Costa Rican banks' obligation to timely pay United States dollars to Allied in New York. Thus the situs of the debt was not Costa Rica." 757 F.2d at 521. The court proceeded to state that Costa Rica's
interest in the contracts at issue is essentially limited to the extent to which it can unilaterally alter the payment terms. Costa Rica's potential jurisdiction over the debt is not sufficient to locate the debt there for the purposes of the act of state doctrine analysis.