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WEYERHAEUSER CO. v. ISRAEL DISCOUNT BANK OF NEW YO

October 28, 1994

WEYERHAEUSER COMPANY, Plaintiff,
v.
ISRAEL DISCOUNT BANK OF NEW YORK and CRESTMANOR HOMES, INC., Defendants.


KEENAN


The opinion of the court was delivered by: JOHN F. KEENAN

JOHN F. KEENAN, United States District Judge:

 Before the Court is the motion of defendant Israel Discount Bank of New York ("IDB") for summary judgment pursuant to Rule 56(b) of the Federal Rules of Civil Procedure ("FRCP"). In this action, Weyerhaeuser Company alleges that IDB, as advising bank under a letter of credit from non-party Bank Leumi Le-Israel ("Leumi"), failed to honor a partial assignment of proceeds to Weyerhaeuser made by defendant, Crestmanor Homes, Inc. ("CHI"), the beneficiary of the letter of credit, despite having notice of the partial assignment. For the reasons set forth below, IDB's motion is denied.

 BACKGROUND

 This is a diversity case. Plaintiff, Weyerhaeuser Company, is a building materials distribution business incorporated in the state of Washington, which is also the location of its principal place of business. Defendant IDB is a New York banking corporation, whose principal place of business is in the state of New York. The other defendant, CHI, which is currently in bankruptcy proceedings in West Virginia, *fn1" is incorporated and has its principal place of business in the state of West Virginia. The amount in dispute exceeds $ 50,000.

 In October of 1991, CHI owed Weyerhaeuser approximately $ 1.5 million for building materials used by CHI to construct modular homes in Israel. Sometime after October 24, 1991, Dan Sundahl, the president of CHI, prepared and executed a letter from CHI to IDB, stating that CHI had entered into a security agreement with Weyerhaeuser pursuant to which CHI irrevocably assigned to Weyerhaeuser a 48.75 percent interest in the proceeds of a letter of credit that Leumi had issued to CHI to secure the payment of modular homes sold by CHI in Israel. See IDB Exhibit D. The letter, which was back-dated to October 4, 1991, was addressed to Moshe Rosenwasser, the Vice-President of IDB, and requested that IDB acknowledge acceptance of the instructions and return a signed copy of the letter to CHI. See id. In its answer to the complaint, submitted prior to its bankruptcy, CHI denied making the Security Agreement and the Sundahl letter. See IDB Exhibit X, at 1-2.

 The letter of credit referenced in the Sundahl letter was issued by Leumi on October 15, 1991 to CHI, as beneficiary, in the sum of $ 1,613,040. IDB, acting as the advising bank under the letter of credit, received a telex transmission from Leumi on October 15, 1991 that set forth the terms, conditions and instructions for the letter of credit. See IDB's 3(g) Statement P 4. Plaintiff claims that this telex was the actual letter of credit issued by Leumi and that IDB possessed this document at all relevant times. IDB, however, asserts that the actual letter of credit was comprised of two documents: (1) the original advice of credit, which IDB prepared on October 23, 1991 after authenticating Leumi's telex and which bore the original signature of one IDB officer; and (2) an attached copy of the telex received from Leumi. See Plaintiff's 3(g) Statement P B(a); IDB's 3(g) Statement P 7. According to IDB, these two documents were sent to CHI after the first payment under the letter of credit on November 7, 1991. See IDB's 3(g) Statement P 7; Rosenwasser Affidavit P 6; Marin Affidavit P 8. IDB further asserts that CHI was required to present the advice of credit, along with the appropriate shipping documents, when seeking payments under the letter of credit. See IDB's 3(g) Statement at P 10.

 CHI apparently never sent the Sundahl letter to either IDB or Leumi. Instead, plaintiff claims that it sent a copy of the Sundahl letter to Moshe Rosenwasser at IDB under cover of letter on November 8, 1991, the day after IDB distributed the first payment on the letter of credit to CHI. See IDB Exhibit E. According to plaintiff, the Sundahl letter was sent by overnight mail and was received by IDB on November 9, 1991. Plaintiff has submitted the overnight mail receipt that reflects that a package was delivered to IDB on November 9, 1991. See Weyerhaeuser Exhibit 9. IDB admits to having received an overnight mail package from Weyerhaeuser on November 9, 1991, but denies having ever received the Sundahl letter. See Zorn Affidavit P 18; IDB Exhibit G.

 The second payment on the letter of credit occurred on December 3, 1991 for $ 343,180.00. According to IDB, CHI never mentioned an assignment to plaintiff, but instead directed IDB to wire the proceeds into its account at Old National Bank ("ONB") in the same manner as the first payment. After authorization from Leumi, IDB followed CHI's direction, sending CHI the second payment.

 In a letter dated December 20, 1991, plaintiff protested to CHI that its diversion of the second payment to itself had placed it in default of the security agreement. See IDB Exhibit M. IDB was not copied on the letter. See id. According to IDB, it first received notice of plaintiff's claim to the money from a letter sent to it by plaintiff, dated December 30, 1991, in which plaintiff stated that IDB had yet to acknowledge receipt of the Sundahl letter. See IDB Exhibit N. On December 31, 1991, IDB responded to plaintiff, asserting that it had never received a copy of the Sundahl letter, and that it would not discuss with plaintiff any transaction in which plaintiff was not a participant. See IDB Exhibit O.

 Leumi has since informed IDB that it will not make any further payments to CHI under the letter of credit. It is not disputed that three payments were approved by Leumi and disbursed to CHI through IDB under this letter of credit: $ 342,451.07 on November 7, 1991; $ 343,180.00 on December 3, 1991; and $ 343,100.00 on January 7, 1992.

 Plaintiff's amended complaint seeks a declaratory judgment that since November 8, 1991, it has held a perfected security interest in 48.75 percent of the proceeds of the second and third payments under the letter of credit, and thus is entitled to 48.75 percent of these two payments, less $ 138,861.56, which CHI apparently paid to plaintiff from the second payment. Plaintiff's amended complaint also sets ...


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