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NORTHROP GRUMMAN OVERSEAS SERV. v. BANCO WIESE SUDAMERIS

September 29, 2004.

NORTHROP GRUMMAN OVERSEAS SERV. CORP. Plaintiff,
v.
BANCO WIESE SUDAMERIS, Defendant.



The opinion of the court was delivered by: LORETTA PRESKA, District Judge

OPINION AND ORDER

Plaintiff Northrop Grumman Overseas Service Corporation ("Northrop" or "Plaintiff"), filed the original complaint in this action on August 26, 2002 in the Supreme Court of the State of New York, County of New York, against defendant Banco Wiese Sudameris ("BWS" or "Defendant"). On the same date, Plaintiff filed an ex parte application for an order to show cause for a preliminary injunction with an application for a temporary restraining order ("TRO") which the state court, the Honorable Herman Cahn, granted, enjoining BWS "and all those acting for or on its behalf or in concert with it" from accepting, transferring, paying, or otherwise conveying funds in the amount representing the proceeds of the L/C.

On September 20, 2002, the return date of the order to show cause, the Honorable Karla Moskowitz held a hearing on Plaintiff's motion for a preliminary injunction. At the conclusion of the hearing, the court granted Plaintiff's motion and issued an order continuing the TRO. On October 17, 2002, the state court entered a preliminary injunction order to the same effect as the TRO.

  On February 17, 2003, the Summons and Complaint were served on BWS pursuant to the Inter-American Convention on Letters Rogatory, and, on March 11, 2003, BWS timely removed the action pursuant to this Court's diversity jurisdiction.*fn1 On July 10, 2003, Plaintiff filed an amended complaint ("Complaint"). By notice of motion dated August 1, 2003,*fn2 Defendant moved to dismiss the Complaint on the basis of failure to plead a prima facie showing of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2) and the doctrine of forum non conveniens, and to vacate the preliminary injunction order issued by the New York State Supreme Court pursuant to Rules 60(b)(4) and 60(b)(6).*fn3 For the reasons stated below, Defendant's motion to dismiss pursuant to Fed.R. Civ. P. 12(b)(2) is granted.

  BACKGROUND

  Except where noted, the facts stated are drawn from the Complaint, documents attached to affidavits submitted by both parties which are incorporated in the Complaint by reference, and documents filed by the parties in the state court. See Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991) ("[T]he complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference."); Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 75 (2d Cir. 1998) (matters of public record may be considered on motion to dismiss); Hirschfeld v. City of New York, No. 97 Civ. 6059, 1997 U.S. Dist. LEXIS 14942, at *2 (S.D.N.Y. Sept. 30, 1997) (documents on file with state court may be considered on motion to dismiss).

  Northrop is a Delaware corporation with its principal place of business in Maryland (Compl. ¶ 5.) BWS is a bank organized under the laws of Peru with its principal place of business in Peru. (Compl. ¶ 6.)

  Northrop entered into a contract with the Ministry of Transportation, Communications, Housing and Construction of Peru (the "MTC"), signed December 30, 1996, under which Northrop was to provide a radar system to the MTC for use in the Jorge Chavez International Airport in Lima, Peru (the "Contract"). (Compl. ¶ 2.) The Contract is governed by Peruvian law. (Compl. ¶ 21.)

  The Completion Bond and the Corresponding Letter of Credit

  The Contract required Northrop to provide a "completion bond" in the amount of the total value of the Contract to guarantee its full performance. (Compl. ¶ 25.) Northrop obtained the completion bond, governed by Peruvian law, from BWS, which issued the bond on behalf of Northrop for the benefit of the MTC. (Compl. ¶¶ 25, 85.) The completion bond, by its terms, is "solidary, unconditional, irrevocable, on demand and without waiver of excussio benefits*fn4 . . . with respect to faithful compliance with the contract." (Affidavit of Thomas H. Golden, sworn to June 18, 2003 ("Golden Aff."), Ex. D (completion bond); see also Compl. ¶ 27.) Under Peruvian law, the MTC could only exercise the completion bond if Northrop did not perform its obligations under the Contract. (Compl. ¶ 28.) BWS issued the completion bond at the request of the Bank of Nova Scotia, Canada based on a telex which stated:
On our behalf and full responsibility please issue your letter of guarantee in favor of [the MTC] for account of [Northrop]. . . . Your guarantee must be effective from December 30, 1996 and include the following wording in Spanish:
"[Exact wording of the completion bond which BWS issued]."
Our counter guarantee in your favor . . . under which we irrevocably and unconditionally undertake to reimburse you against your first demand by tested telex or swift message for any amount up to [the value of the completion bond] indicating that you have been required by beneficiaries to pay under your letter of guarantee.*fn5
(Golden Aff., Ex. E.)
  In or about June 2001, JP Morgan took the role of the Bank of Nova Scotia, and the JP Morgan L/C replaced the Bank of Nova Scotia's letter of credit. (See Golden Aff., Ex. F (JP Morgan L/C issuing document which expressly states that it is a condition of the L/C that it shall become operative upon the receipt of BWS' notification of the cancellation of the Bank of Nova Scotia's standby letter of credit).) The value of the L/C, like the counter guarantee originally issued by the Bank of Nova Scotia, mirrors the completion bond. (Compl. ¶ 29.) By its terms, all communications relating to the L/C, including any draw on the L/C, were to be directed to the Chase Manhattan Bank, standby letter of credit department, 4 Chase Metrotech Center, 8th Floor, Brooklyn, New York. (Compl. ¶ 31; see also Golden Aff., Ex. F.) The L/C, addressed to BWS, provides:
We hereby issue our irrevocable standby letter of credit . . . in your favor for account of [Northrop], P.O. Box 451 Mail Stop A275, Baltimore, Maryland, USA 21203. . . .
This standby letter of credit is issued as our counter guarantee to your letter of guarantee . . . in favor of [the MTC] . . . and replaces Bank of Nova Scotia Letter of Credit . . . presently issued in your favor as a counter guarantee to your letter of guarantee.
The Chase Manhattan Bank hereby irrevocably and unconditionally undertake [sic] to reimburse you against your first demand by authenticated telex or swift message for any amount up to USD11, 942,016.80 indicating that you have been required by beneficiaries to pay under your letter of guarantee.
(Golden Aff., Ex. F; see also Compl. ¶ 32.) The L/C is expressly governed by the Uniform Customs and Practice for Documentary Credits (1993) Revision International Chamber of Commerce Publication No. 500 ("UCP").*fn6 (Golden Aff., Ex. F.)
  The Court of Appeals has noted that:
Generally, letters of credit are designed to substitute for, and therefore support, an obligation to pay. They involve three separate, but related, contracts — the underlying sales contract between a buyer and a seller; the agreement between an issuing bank and its customer, the buyer, by which the bank agrees to issue a letter of credit; and the letter of credit itself, which is the bank's commitment to pay the beneficiary, the seller, upon compliance with terms and conditions specified in the letter of credit.
All Service Exportacao, Importacao Comercio, S.A. v. Banco Bamerindus Do Brazil, S.A., 921 F.2d 32, 34 (2d Cir. 1990) (citing First Commercial Bank v. Gotham Originals, Inc., 64 N.Y.2d 287, 294 (N.Y. 1985)). Typically, the bank agrees to issue the letter of credit in return for its customer's promise to reimburse it for any payments made under the letter of credit plus a commission. See First Commercial, 64 N.Y.2d at 294. The New York Court of Appeals has further explained that:
The fundamental principle governing these transactions is the doctrine of independent contracts. It provides that the issuing bank's obligation to honor drafts drawn on a letter of credit by the beneficiary is separate and independent from any obligation of its customer to the beneficiary under the sale of goods contract and separate as well from any obligation of the issuer to its customer under their agreement. Stated another way, this principle stands for "the fundamental proposition . . . that all parties [to a letter of credit transaction] deal in documents rather than with the facts the documents purport to reflect." Thus, the issuer's obligation to pay is fixed upon presentation of the drafts and the documents specified in the letter of credit. It is not required to resolve disputes or questions of fact concerning the underlying transaction.
Id. at 294-95.

  While situation here varies slightly from the traditional circumstances, it is typical of international letter of credit transactions, and the same principles apply. See, e.g., United Technologies Corp. v. Citibank, N.A., 469 F. Supp. 473, 477 (S.D.N.Y. 1979). Here, there are two letters of credit acting under the Contract — the first, the completion bond issued by BWS in favor of the MTC acting as a guarantee of Northrop's performance, and the second, issued by JP Morgan in favor of BWS, reimbursing BWS should BWS be required to pay out the completion bond to the MTC. As discussed, supra, if JP Morgan were required to pay out the L/C to BWS, it would debit from Northrop's account the amount paid to BWS plus any fee agreed to by Northrop and JP Morgan pursuant to which the L/C was issued.*fn7

  The Dispute between the MTC and Northrop

  The subject of the Contract, the radar system, is primarily comprised of three parts: the control center, the radar station, and the simulator. (Compl. ¶ 22.) The Contract provided that the MTC would accept the radar system in two stages. (Compl. ¶ 35.) First, there would be a preliminary technical acceptance when the system was installed and operations began, and second, there would be a "final" acceptance beginning thirty days after technical acceptance which would indicate that the system was in full compliance with the Contract's terms. (Compl. ¶ 35.) On November 30, 1998, Northrop and the MTC entered into an agreement that the MTC would grant partial acceptance of the system and specified terms under which the MTC would accept the remainder and issue the final acceptance. (Compl. ¶¶ 36-40.) On July 19, 2002, Northrop wrote to the MTC stating that all of the requirements for acceptance of the system had been met and requesting that the MTC issue the final acceptance under the Contract. (Compl. ¶ 45.) The MTC refused to issue the final acceptance. (Compl. ¶ 46.) By letter dated July 26, 2002, Northrop terminated the Contract due to the MTC's failure to grant final acceptance and sought to initiate dispute resolution procedures required under the Contract. (Compl. ¶ 47.)

  BWS' Attempts to Draw Upon the L/C

  On July 26, 2002, the MTC wrote to BWS requesting that the term of the completion bond be extended for three months and stated that if it was not extended by BWS within 48 hours, "it must be executed in favor of the [MTC]." (Prescott Aff., Ex. P (letter); see also Compl. ¶ 49.) On July 31, 2002, BWS sent a telex message to JP Morgan stating: Unless you extend maturity date of your stand by letter of credit . . . we have to execute your referenced stand by L/C and stating that we have been required by beneficiaries to pay under our letter of guarantee.

 
Therefore, we are claiming payment . . . to be credited to our account. . . .
Kindly advise extension or confirm payment.
(Prescott Aff., Ex. Q (letter); see also Compl. ¶ 50.) Plaintiff alleges "upon information and belief" that on July 31, 2002, the MTC had not attempted to draw upon the completion bond and BWS had not paid the proceeds of the completion bond to the MTC. (Compl. ¶ 51.) In early August 2002, representatives of Northrop and the MTC began negotiations. (Compl. ¶ 52.) However, on August 12, 2002, Northrop received a letter from the MTC dated August 9, 2002 purporting to terminate the Contract, an act which according to Plaintiff violated terms of the Contract. (Compl. ¶¶ 60-70.) By letter dated August 9, 2002, and apparently received by BWS on August 12, the MTC requested "by full right" execution of the completion bond. (Golden Aff., Ex. G (letter); see also Compl. ¶ 71.) According to Plaintiff, this exercise also violated provisions of the Contract. (Compl. ¶ 72.) On August 20, 2002, BWS contacted JP Morgan by telex stating that "we have been required by beneficiaries to pay under our letter guarantee" and therefore "are claiming payment of your stand by letter of credit." (Compl. ¶ 73; see also Golden Aff., Ex. H (telex).) BWS had not paid the proceeds of the completion bond to the MTC on or before August 20, 2002. (Compl. ¶ 74.) According to Plaintiff, on August 20, 2002, representatives of the MTC advised Northrop that the MTC had verbally instructed BWS not proceed with the draw down of the completion bond and issued written instructions stating the same. (Compl. ¶ 75.) On August 21, 2002, JP Morgan sent a telex to BWS on behalf of Northrop advising that Northrop and the MTC were in negotiations and requesting that BWS await the outcome of those negotiations before demanding payment of the L/C. (Compl. ¶ 76; see also Golden Aff., Ex. I (telex).) On August 22, 2002, BWS responded by telex stating that "we acted according with the instruction received from beneficiary . . . [and] [t]hat instruction indicated the payment of our guarantee, so that we are sending our message again," claiming payment. (Golden Aff., Ex. J (telex); Compl. ¶ 77.) On August 22, 2002, BWS had not paid the proceeds of the completion bond to the MTC. (Compl. ¶ 78.) By letter dated August 23, 2002, the MTC advised BWS that the MTC and Northrop had initiated conciliatory negotiations in order to seek a resolution of the disputes arising from the Contract. (Compl. ¶ 79.) Also on August 23, representatives of Northrop held a teleconference with representatives of BWS, during which BWS informed Northrop that it was aware that negotiations were ongoing between BWS and the MTC and it was also aware that the MTC wished to suspend payment of the completion bond. (Compl. ¶ 80.) As of the date of the Complaint, July 10, 2003, Northrop and the MTC remain in negotiations unable to reach a resolution. (Compl. ¶ 82.) Also as of the date of the Complaint, BWS still has not paid the proceeds of the completion bond to the MTC. (Compl. ¶ 83.)

  The Instant Action

  Plaintiff alleges three causes of action against BWS: (i) fraudulent exercise of a letter of credit under U.C.C. § 5-109; (ii) common law fraud; and (iii) conversion, as well as a claim for injunctive relief. Each cause of action is premised on the same alleged facts — that BWS fraudulently called upon the L/C by making a material misrepresentation that a condition precedent to payment had been satisfied, facilitating the MTC's fraud upon Northrop, and thereby depriving Northrop of its interest in the L/C funds.

  ...


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