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ACR Systems, Inc. v. Woori Bank

United States District Court, S.D. New York

February 8, 2017

ACR SYSTEMS, INC., Plaintiff,
WOORI BANK, Defendant.

          For Plaintiff ACR Systems, Inc.: LAW OFFICE OF JOHN E. CONE JR. John E. Cone Jr. MARC M. COUPEY LAW, PLLC Marc M. Coupey

          For Defendant Woori Bank: SHEPPARD, MULLIN, RICHTER & HAMPTON LLP Robert S. Friedman Rena Andoh Shin Y. Hahn

          OPINION & ORDER

          JOHN F. KEENAN, United States District Judge

         Before the Court is Defendant Woori Bank's (“Woori”) motion to dismiss Plaintiff ACR Systems Inc.'s (“ACR”) amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The amended complaint asserts claims for wrongful dishonor of a letter of credit, civil conspiracy, and punitive damages. For the reasons set forth below, Woori's motion is DENIED as to the wrongful dishonor claim and GRANTED as to the claims for civil conspiracy and punitive damages.

         I. Background

         The following facts are drawn from the amended complaint and its attached exhibits. ACR is a Texas corporation authorized by the U.S. Government to supply military goods to various foreign governments. (Am. Compl. ¶¶ 2, 6.) Woori is a South Korean bank, owned in part by the government of South Korea, with a branch in Manhattan. (Id. ¶ 3.) Nonparty Woong Kook is an agent of the Defense Ministry of South Korea (“DAPA”). (Id. ¶¶ 4-5.)

         In January 2011, ACR entered into five contracts with Woong Kook to provide certain custom military goods to DAPA. (Id. ¶ 17.) The value of the first contract was $85, 862.00. (Id. ¶ 18.) The value of the other four contracts totaled $250, 270.08. (Id. ¶ 17.) Payment for the goods covered by the first contract was to be made by a letter of credit, which is attached as Exhibit A to the complaint. (Id. ¶ 19.) The letter of credit bears an issue date of December 28, 2010, and an expiration date of April 30, 2012. (See id. Ex. A at 1.) By its terms, the letter is “subject to the ICC UCP600 [the Uniform Customs and Practice for Documentary Credits] and URR [Uniform Rules for Bank-to-Bank Reimbursements Under Documentary Credits] latest version.” (Id. at 2.)

         “Generally, letters of credit are designed to substitute for, and therefore support, an obligation to pay.” All Serv. Exportacao, Importacao Comercio, S.A. v. Banco Bamerindus Do Brazil, S.A., N.Y. Branch, 921 F.2d 32, 34 (2d Cir. 1990). A transaction covered by a letter of credit typically involves three distinct agreements. First, there is the underlying sale-of-goods contract between the buyer and seller. Alaska Textile Co. v. Chase Manhattan Bank, N.A., 982 F.2d 813, 815 (2d Cir. 1992). Second, there is the buyer's agreement with a bank to issue the letter of credit to the seller, as beneficiary. Id. Third, there is the letter of credit itself, which obligates the bank to pay the seller when it presents certain documents to the bank (e.g., documents of title, transport and insurance documents, and commercial invoices) that conform with the terms of the credit. Id.

         In this case, Woori was the issuing bank and ACR was the seller-beneficiary. The letter of credit required ACR to present specified documents to receive payment, including bills of lading for the shipped goods, a signed commercial invoice, and an “inspection acceptance certificate” from DAPA, the South Korean authority receiving the goods. (See Am. Compl. Ex. A. at 2.) A January 17, 2011 amendment to the letter of credit, attached as Exhibit B to the complaint, specified that Woong Kook was to forward the acceptance certificate to ACR within seven days of the date it was issued by DAPA, and that ACR's “statement to the bank that this was not done” would be “a cause to draw against the Letter of Credit.” (Id. Ex. B.)

         On February 23, 2012, ACR delivered the military goods covered by the first contract for shipment to South Korea. (Id. ¶ 22.) Despite the fact that the goods allegedly arrived to DAPA in “good order and condition, ” ACR did not receive an acceptance certificate from DAPA. (Id. ¶¶ 23-24.) According to the complaint, ACR timely notified Woori that it did not receive the acceptance certificate and “timely complied with all preconditions and requirements of the Letter of Credit by tendering to Woori all documentation and information required by the Letter of Credit.” (Id. ¶¶ 24-25.)

         Notwithstanding ACR's alleged compliance with the terms of the letter of credit, Woori paid only $28, 099.11 of the $85, 862.00 due, leaving $57, 762.89 outstanding. (Id. ¶ 26.) Thereafter, ACR repeatedly requested payment of the remaining amount due, but Woori did not pay. (Id. ¶ 27.) According to the complaint, Woori claimed that ACR's failure to present a DAPA acceptance certificate prevented it from paying any amount under the letter of credit, but that Woori nonetheless had made partial payment after accounting for certain deductions demanded by Woong Kook and DAPA. (Id. ¶¶ 36-37.)

         ACR alleges that Woori wrongfully dishonored the letter of credit, and that “Woori and Woong Kook colluded to deny the existence of and supply false information regarding the Letter of Credit and Woori's legal obligation to pay ACR the face amount of the Letter of Credit.” (Id. ¶¶ 37-38.) ACR claims that, after this case was filed, Woori and its employees stated that they did not have a copy of the letter of credit and, when they were presented within it, claimed that they did not understand its terms. (Id. ¶ 38(a).) According to ACR, Woori and Woong Kook's collusion was also evidenced by Woong Kook's filing of a separate lawsuit against ACR in Texas after this case was filed. (Id. ¶ 38(g)-(k).) ACR claims that this “led to false and malicious publications claiming that ACR had engaged in fraud with Woong Kook regarding the shipment in question.” (Id. ¶ 54.)

         Based on these allegations, ACR asserts three claims: (1) wrongful dishonor of the letter of credit, (2) civil conspiracy; and (3) punitive damages. ACR seeks to recover $385, 032.97 on the wrongful dishonor claim, including the amount still owed on the first contract plus $250, 270.08 in damages flowing from the cancellation of the remaining four contracts, along with inventory and travel expenses. (Id. ¶¶ 43-46.) ACR also seeks damages of $2, 400, 000.00 on the civil conspiracy claim, as well as punitive damages in an amount to be set by the Court. (Id. ¶¶ 51, 59.)

         II. ...

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