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NASSAR v. FLORIDA FLEET SALES

January 6, 1999

HUSSEIN NASSAR AND INSEARCH MARKETING AND TRADING COMPANY, PLAINTIFFS,
v.
FLORIDA FLEET SALES INC.; TNC, INC.; FREDERICK ROCCANTI, PRESIDENT OF FLORIDA FLEET SALES INC. AND TNC; FRED M. DELLORFANO, ATTORNEY-IN-FACT FOR FLORIDA FLEET SALES INC.; EX-IM INTERNATIONAL, LTD.; ANTHONY DELLORFANO, PRESIDENT OF EX-IM INTERNATIONAL; NATIONAL BANK OF KUWAIT SAK, NEW YORK BRANCH; WORLDWIDE SURETY COMPANY; AND WORLDWIDE BUSINESS SERVICES INC., DEFENDANTS.



The opinion of the court was delivered by: Cote, District Judge.

  OPINION AND ORDER

Plaintiffs bring this diversity action against a number of different defendants alleging improper breaches of a letter of credit and a series of underlying agreements. Plaintiffs were the first beneficiary to a letter of credit. In the causes of action relevant to the present motion, they complain principally that their sub-contractor wrongfully obtained money under the letter of credit due to errors by the advising and confirming bank with respect to one transfer made on presentation of a performance bond and another made to an escrow account. The advising and confirming bank under the letter of credit now moves for summary judgment. Plaintiffs make a cross motion for summary judgment. For the reasons stated, the bank's motion for summary judgment is granted in full and plaintiffs' motion is denied.

BACKGROUND

Plaintiff Hussein Nassar was in the business of exporting cars and the sole proprietor of plaintiff Insearch Marketing and Trading Company ("Insearch"), a business located in Texas at the time of the relevant transactions. After the Gulf War in August 1991, Al-Jazira Trading Company ("Al-Jazira"), a Kuwaiti company, entered into a contract with the Kuwaiti government to supply 100 armored General Motors trucks to be used at the first meeting of the member states of the Gulf Cooperation Council in Kuwait on December 25, 1991. In order to obtain the trucks, Al-Jazira entered into an agreement with Insearch and Mr. Nassar in the amount of $3,036,625. Insearch then sought a sub-contractor and entered into a similar agreement with Florida Fleet Sales Inc. ("Florida Fleet"). Nassar had no previous dealings with the principals of Florida Fleet and subcontracted with them because they looked "like good people." The purchase price of the trucks under this agreement was $2,286,995. The agreements called for shipping the trucks by ocean freighter prior to November 10, 1991, to assure they would arrive in time for the conference.

Payment under the agreement between Insearch and Al-Jazira was to be effected through a letter of credit issued by the National Bank of Kuwait in Safat, Kuwait ("NBK Kuwait") with the National Bank of Kuwait in New York, New York ("NBK New York") serving as the United States advising and confirming bank. Al-Jazira applied to NBK Kuwait to issue an irrevocable letter of credit in the amount of $3,036,625, with Insearch named as the first beneficiary. NBK Kuwait issued the letter of credit by telex on October 7, 1991. NBK New York advised Insearch of the letter of credit on October 8, 1991.

Under its terms, the letter of credit was to function as follows: Upon meeting certain conditions specified in the letter of credit, involving the presentation of documents describing the vehicles and bills of lading from the shipment, the first beneficiary Insearch would be permitted to be paid in the form of a draw on the letter of credit. As the advising and confirming bank, NBK New York would assure that the conditions had been met and make the payments to Insearch. The letter of credit was irrevocable and expired on November 18, 1991, meaning that Insearch had to present all of the required documents before this date to be paid.

Performance Bond Advance

As written, the letter of credit permitted Insearch to draw twelve percent of the balance of the credit:

  immeidiately [sic] upon presentation of their simple
  receipt in triplicate accompanied by an unconditional
  performance bond issued or confirmed by [NBK New
  York] in favor of applicant, valid until 31st
  December 1991 and payable on applicant's first
  demand. . . .

On the day of the issuance of the letter of credit, this provision was amended to change the percentage to ten percent of the total, or $303,662.50. In addition, the language "unconditional performance bond issued or confirmed by [NBK New York]" was amended to read instead "performance bond for [$364,395.00] on the standard format issued by a recognized insurance company legally operating under U.S. laws or issued and confirmed by [NBK New York]."*fn1

At NBK New York, the letter of credit was handled by Athanasia "Soula" Stephanides, the supervisor of the bank's letter of credit department. On the day of the issuance of the letter of credit, Ms. Stephanides met with Mr. Nassar of Insearch and Fred M. Dellorfano,*fn2 the attorney for Florida Fleet, who had previously contracted with Insearch to ship the vehicles. At the meeting, the parties reviewed a performance bond dated October 7, 1991 and issued by Worldwide Business Services, Inc. ("Worldwide"). By its terms, the performance bond binds Worldwide to make payments to Al-Jazira and Insearch in the amount of $364,395.00 to guarantee Florida Fleet's performance under the October 7, 1991 agreement until the termination date of December 31, 1991.*fn3 The bond is signed by Mr. Nassar as agent for Al-Jazira*fn4 and Mr. Dellorfano, as attorney in fact for Florida Fleet, as well as by a representative of Worldwide.

Nassar claims that he never saw the performance bond prior to this meeting and that he "relied on Ms. Stephanides' statement that the Bond was acceptable and signed the Bond as instructed by Ms. Stephanides." He also alleges that Stephanides knew the performance bond was fraudulent but did not tell him. At her deposition, Stephanides said that she was the NBK New York expert in performance bonds, but that she had never seen a performance bond like the one presented at the meeting. She said that Insearch had no reason to be protected by the performance bond. She also stated that the performance bond did not meet the terms of the letter of credit, but that under the amendment, NBK New York was not required to confirm the bond. Further, she stated that the bond "doesn't logically make sense," but that since Al-Jazira had approved it, "even if it is a Mickey Mouse document, it's okay with me."

NBK New York proceeded to fax the performance bond to NBK Kuwait for review by it and by Al-Jazira. Al-Jazira responded on October 9 that "[t]he performance bond dated [October 7] submitted by Insearch Marketing and Trading Co. is acceptable to us and we hereby authorized [sic] you to pay 10% of the [letter of credit] value." (Emphasis added.) Although the characterization of these actions is in dispute,*fn5 it is undisputed that Nassar then executed a document dated October 9 on Insearch letterhead acknowledging receipt of $303,662.50 under the letter of credit. It is also undisputed that Nassar, as principal of Insearch, signed another agreement dated October 10, 1991, that authorized NBK New York to pay the proceeds of the draft of $303,662.50 to Fred Dellorfano.*fn6 Nassar says that this transfer to Florida Fleet was necessary to allow it to obtain special parts for the trucks. Nassar also says the transfer was made in part in reliance on the performance bond and in part because Dellorfano and Stephanides insisted on making it.

After this transfer, on October 10 Insearch made Florida Fleet a "second beneficiary" under the letter of credit. In a document signed by Mr. Nassar, Insearch irrevocably transferred its rights to draw on the letter of credit up to about $2 million to Florida Fleet. After this time, problems in the performance of the underlying contract began to arise. After Florida Fleet had shipped 10 trucks by ocean freighter, Florida Fleet informed Nassar that it could not deliver the remaining 90 trucks by the November 10, 1991 deadline.

Payment to Escrow Account

In order to guarantee arrival by December 25, 1991, it was necessary to transport the remaining 90 vehicles via air shipment. On November 21, 1991, the letter of credit was amended to extend the time for delivery of the remaining 90 vehicles until December 5, 1991 and to require all invoices to be signed by Mr. Al-Asfour, a representative of Al-Jazira.*fn7 The parties inquired with private air transport carriers but found them to be too expensive. Dellorfano then stated that he had contacts with the office of Senator Sam Nunn and the United States Military Assistance Command, and that the United States Air Force would ship the trucks for $440,000, the cost of the fuel. He then told the parties that the military required payment to be made through an escrow account earmarked for it prior to shipment. Instead of establishing a separate escrow account, which would cause additional delays, the parties agreed to use Dellorfano's personal escrow account to hold the funds.

On December 9, 1991, the letter of credit was again amended.*fn8 The amendment read as follows:

  "You are authorised [sic] to advance [$440,000] to be
  placed in `escrow' account No.4-125-746 of Fred M.
  Dellorfano with Rockland Trust Company, Rocklan[d],
  Massachusetts, ABA No. 4-125-746 with a condition
  that funds are to be released against presentation of
  a written guarantee from the proper U.S. army
  authority that the 90 vehicles have already been
  transported to Kuwait and provided this guarantee
  carry [sic] the authorized signatures of
  representatives of both [Florida Fleet and Insearch].
  . . . This amendment represents total air
  transportation cost of 90 vehicles and no further
  claim towards freight from any party will be
  entertained. If these conditions is [sic] not
  satisfied within the next 10 days from the date of
  transfer of funds in the foregoin [sic] `escrow'
  account, the amount in full . . . will have to be
  returned back to you. . . . In case of discrepancies,
  discuss the discrepancies with [Al-Asfour of
  Al-Jazira] who has the authority to waive the
  discrepancies."

As a result of this amendment, on December 9, 1991, Mr. Dellorfano for Florida Fleet, Mr. Nassar for Insearch, and Mr. Al-Asfour for Al-Jazira, executed a letter agreement addressed to Ms. Stephanides. The terms of the letter agreement call for the transfer of $440,000 to Dellorfano's escrow account at Rockland Trust Company. In exchange, Dellorfano agreed to the following:

  1. Such funds will be released only against the
  presentation of a written guarantee from the proper
  U.S. Government Authority that ninety (90) ...

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