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April 28, 1999


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


(Second Corrected)

Kookmin Bank ("Kookmin"), which is organized in the Republic of Korea ("Korea"),*fn1 presented a draft for payment under a letter of credit (the "L/C") issued by Hamilton Bank, N.A. ("Hamilton"), a national bank with its principal office in Florida.*fn2 Hamilton refused to pay because a required document was missing. Hamilton, however, failed to notify Kookmin by telecommunication of the reason for its refusal as required by the Uniform Customs and Practice for Documentary Credits (1993 Revision), ICC Pub. No. 500 (the "UCP"), which governed the L/C. Hamilton brought this action for a declaratory judgment and for damages for libel by a letter Kookmin sent to the Office of the Comptroller of the Currency ("OCC"). Kookmin has counterclaimed to recover the $1.5 million allegedly due on the L/C and now seeks summary judgment.


The Letter of Credit

The material facts are not in dispute. On June 11, 1996, Hamilton issued a letter of credit in the amount of $1,500,000 on behalf of Sky Industries Corporation ("Sky") for the benefit of Sung-Jin Trading Co. ("Sung-Jin") in connection with a proposed transaction in which Sky would purchase leather sport shoes from Sung-Jin.*fn3 By the original terms of the L/C, payment would be made on a draft upon presentation of (1) a bill of lading, (2) a commercial invoice, (3) a packing list, and (4) a "copy of authaenticated [sic] telex from issuing bank to advising bank, indicating quantity to be shipped, destination, and nominating transporting company" (the "Authenticated Telex").*fn4 The purpose of the Authenticated Telex was to protect Hamilton. No draft would be honored until Sky first deposited and pledged funds backing the total amount of the L/C.*fn5

The L/C was amended three times,*fn6 the only relevant amendment being the third which stated in pertinent part "on additional conditions add: No further Amendments of this L/C will be issued by applicant. Any other condition should be in accordance with `Option Contract' signed by applicant and beneficiary dated May 31, 1996. All other terms remain unchanged."*fn7 The L/C and each of its amendments stated it was governed by the UCP.*fn8

Sung-Jin Trading's Negotiation of the L/C

J.G. Kim, the president of Sung-Jin, attempted to negotiate a draft drawn on the unamended L/C to Kookmin's Pusan branch in June 1996. Taek Su Jun, a Kookmin manager, refused to negotiate the draft because the Authenticated Telex was not included among the documents presented.*fn9 According to Jun, Kim told him that "it [was] in the process of being taken care of."*fn10

On July 12, Kim allegedly attempted to negotiate a draft drawn on the amended L/C at Pusan Bank.*fn11 That same day, Pusan Bank sent a message to Hamilton through SWIFT*fn12 seeking approval to negotiate the draft without the Authenticated Telex.*fn13 On July 17, Hamilton responded via SWIFT notifying Pusan Bank that it was not permitted to do so.*fn14

On July 13, prior to obtaining a response from Pusan Bank, Kim attempted once again to negotiate his draft to Kookmin.*fn15 This time, in response to Jun's request for the Authenticated Telex, Kim presented to Kookmin two documents: one entitled "special instructions," purportedly from Sky Industries to Sung-Jin, dated July 2, 1996,*fn16 and the other a copy of an option contract dated May 31, 1996 between Sung-Jin and Sky Industries*fn17 which contained a reference to the special instructions.*fn18

Although the option contract presented to Kookmin referred to the Authenticated Telex requirement,*fn19 according to Jun, Kim explained that the combination of the option contract and the special instructions obviated the need for it.*fn20 Kookmin did not verify this with Hamilton.*fn21 Nor did it inquire of Dong Nam Bank, Hamilton's advising bank in Korea, whether the Authenticated Telex had been received or into the significance of the special instructions.*fn22 Evidently assuming that the L/C requirements had been satisfied, Kookmin negotiated the draft and remitted $1.5 million to Sung-Jin.*fn23

Kookmin's Presentation of the Documents to Hamilton

Kookmin sent to Hamilton the documents it obtained from Kim along with a request for payment of $1.5 million. Hamilton received the documents on July 22, 1996*fn24 and returned them to Kookmin via courier on July 24 with an accompanying letter stating that they were being returned because presentment was "not in compliance with the terms and conditions of the credit."*fn25 On August 2, Kookmin again presented the documents to Hamilton.*fn26 Four days later, Hamilton again returned the documents to Kookmin*fn27 and sent a message through SWIFT the same day stating that Hamilton was returning them because Kookmin had not presented the Authenticated Telex as required by the L/C.*fn28

Kookmin's Letter to the OCC

Over the course of the next year, Kookmin and Hamilton exchanged correspondence regarding the L/C with no amicable resolution. On October 14, 1997, Kookmin sent a letter by facsimile to the Office of the Comptroller of the Currency ("OCC") in both Florida and Georgia.*fn29 Kookmin there stated that it believed that Hamilton issued the L/C with the intent not to honor it; that it had evidence that similar L/C's had been issued previously; that it believed that Hamilton had committed fraud; and that Kookmin was preparing a lawsuit in Korea. Kookmin asked, moreover, for certain factual information about Hamilton.*fn30 In response to this letter, the OCC requested information from Kookmin regarding its evidence of the alleged fraud.*fn31 Kookmin provided details pertaining to Hamilton's failure to make payment on the L/C and of its issuance of at least one other letter of credit with an authenticated telex requirement.*fn32 The OCC sent Hamilton a copy of Kookmin's initial letter and inquired about the allegations it contained.*fn33

Procedural History and Claims Asserted

Kookmin brought an action in Korea on or about December 5, 1997 to recover damages for Hamilton's refusal to honor the L/C. Hamilton subsequently brought this action seeking an injunction barring prosecution of Kookmin's Korean action, a declaratory judgment and damages for libel against Kookmin. It also sued Sky Industries, claiming that Sky must indemnify it if Hamilton is found liable to Kookmin. Kookmin counterclaimed against Hamilton for Hamilton's dishonoring the L/C. This Court denied Hamilton's motion to enjoin the Korea suit,*fn34 which since has been decided in Kookmin's favor. Kookmin moves now for summary judgment dismissing the complaint. It argues that (1) Hamilton's failure to follow precisely the procedures of the UCP precludes Hamilton from relying on the lack of the Authenticated Telex to justify dishonoring Kookmin's draft drawn on the L/C; (2) Hamilton is estopped from claiming that Kookmin failed to obtain the Authenticated Telex because Hamilton itself was responsible for its issuance;*fn35 and (3) Hamilton has no claim for libel.


Choice of Law

A threshold issue concerns the law that governs resolution of this dispute. It is well settled that when subject matter jurisdiction is based on diversity, federal courts look to the choice of law rules of the forum state.*fn36 Under New York conflicts principles, the law of the issuing bank's locus governs with respect to liability for the nonpayment of a draft under a letter of credit,*fn37 and claims for libel generally are governed by ...

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