Brenntag Intern. Chemicals, Inc. v. Bank of India

• Citation: 175 F.3d 245
• Decision Date: 26 April 1999
• Docket Number: No. 98-7992,98-7992
• Parties: BRENNTAG INTERNATIONAL CHEMICALS, INC., Plaintiff-Appellee, v. BANK OF INDIA, Defendant-Cross-Claimant-Appellant, Norddeutsche Landesbank GZ, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 245

175 F.3d 245

BRENNTAG INTERNATIONAL CHEMICALS, INC., Plaintiff-Appellee, v. BANK OF INDIA, Defendant-Cross-Claimant-Appellant Norddeutsche Landesbank GZ, Defendant.

No. 98-7992.

United States Court of Appeals Second Circuit.

Argued Feb. 9, 1999.

Decided April 26, 1999.

James C. Murray, Jr., Katten, Muchin & Zavis (Christian T. Kemnitz, Katten, Muchin & Zavis, of counsel; Linda C. Goldstein, Howard, Smith & Levin, New York, New York, of counsel), Chicago, Illinois, for Plaintiff-Appellee.

James D. Arden, Sidley & Austin (Rajiv Khanna, John J. Lavelle, of counsel), New York, New York, for Defendant-Cross-Claimant-Appellant.

Before: WINTER, Chief Judge, VAN GRAAFEILAND, and PARKER, Circuit Judges.

WINTER, Chief Judge:

Bank of India ("BOI") appeals from Judge Sweet's order preliminarily enjoining Norddeutsche Landesbank GZ ("NDL") from making payment under an irrevocable stand-by letter of credit ("LOC"). The LOC was issued by NDL at the request of Brenntag International Chemicals, Inc. ("Brenntag"), as applicant, made out to Petro Pharma PTE, Ltd. ("Petro") as beneficiary and named BOI as Petro's negotiator bank. Judge Sweet also enjoined BOI from commencing further litigation with respect to the LOC or making further attempts to collect thereunder. The district court concluded that: (i) BOI was not entitled to payment from NDL, because the documents it submitted to evidence its rights under the LOC were false on their face and BOI was not a holder in due course; and (ii) Petro's insolvency was sufficient under the circumstances to support a finding of irreparable harm. See Brenntag Int'l Chems., Inc. v. Norddeutsche Landesbank GZ, 9 F.Supp.2d 331, 341-46 (S.D.N.Y.1998). The district court also held that the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1602-1611, did not prohibit the injunction. See Brenntag, 9 F.Supp.2d at 346-47. We affirm.

BACKGROUND

We briefly summarize the facts material to this appeal. The background is set forth in greater detail in the district court's opinion. See id. at 333-41.

In March 1996, Brenntag contracted with Petro to purchase about 15,000 metric tons of naphtha for shipment to a third party. The payment terms were secured by an irrevocable stand-by letter of credit in favor of Petro that Brenntag opened with NDL. The LOC could be drawn upon only after non-performance by Brenntag and submission to NDL of specified supporting documents, including a copy of the commercial invoice covering the purchased goods, a copy of the negotiable bill of lading indicating that the goods were shipped, and a letter signed by an authorized representative of Petro stating that "payment, which was due 360 days after completion of loading, has not been received and is due." Id. at 335 (quoting Shortly after the LOC was opened, Petro sought to have BOI advance to it funds against, or "discount," Petro's expected receivable secured by the LOC. Petro also provided certain documents to BOI, including an undated default letter. Petro indicated in the letter accompanying the documents that they were provided "for the purposes of completing your records." Id. (quoting letter).

LOC). Moreover, the originals of the documents were to be sent under cover letter from the beneficiary, Petro, to NDL. Because BOI was Petro's negotiator bank under the LOC, payment would be made through it, and, were it to advance funds against the LOC, BOI would be subrogated to Petro's rights.

Certain of these documents contained errors. For instance, the invoice Petro submitted stated an incorrect unit price per metric ton. See id. at 336. More importantly, the default letter was facially invalid because it noticed Brenntag's default a full year prior to the earliest possible date of default under the LOC. Not surprisingly, the default letter was undated. In his deposition, Some Nath Banerjee, Manager of Trade Finance for BOI's Singapore Office, conceded that the default letter was "not true and could not have been true" at the time it was written. Id. In light of future events, it was also signed by someone who no longer worked for Petro at any time when a default could have occurred. Despite these irregularities, BOI decided to advance the funds sought by Petro. It did, however, obtain a personal guaranty from Narasimhan Ashok, one of Petro's directors.

Petro was having financial difficulty at this time and never shipped the naphtha. Accordingly, on June 22, 1996, Brenntag notified Petro that it was canceling its purchase contract. ¹ Shortly thereafter, B. Aranaprasad ("Prasad"), one of the Petro officers who had signed the undated default letter, resigned. Petro then sent a letter dated July 1, 1996, advising BOI, inter alia, that Prasad was no longer authorized to represent Petro. After Gandarvakottai Raghavan was appointed to replace Prasad, Petro sent a board resolution to BOI indicating which officers were entitled to sign documents on its behalf. Raghavan was listed and Prasad was not. ²

In August 1996, BOI noticed that Petro was late on certain payments owed under another loan. It sought and received the money owed but proceeded to review Petro's other accounts. On August 28, 1996, BOI sent NDL a facsimile requesting acknowledgment of receipt of the original documents required to be submitted to it under the LOC. On September 3, 1996, NDL replied by telex that it had not yet received the documents. BOI then made several requests to Petro for receipts or other proof that it had sent the original documents to NDL. Petro never supplied the requested documents.

On September 24, 1996, BOI sent a facsimile to NDL stating that the "[d]ue date of bill is on 12/3/97 and we will present documents as per LOC terms." Id. at 339 (quoting facsimile). In reply thereto, NDL, by telex on October 4, 1996, stated that "the L/C expires on June 30, 1997 and can only be utilized against presentation of documents as [previously] outlined." Id. (quoting telex). BOI did not respond to this telex.

In February 1997, an advertisement in the Straits Times announced an involuntary liquidation proceeding against Petro filed by one of its creditors. BOI then contacted Petro about the money owed it pursuant to the loan against the LOC.

Raghavan testified that he acknowledged Petro's liability to BOI and indicated that BOI should look to Ashok, the Petro director who had personally guaranteed Petro's obligations to BOI. Raghavan also informed Banerjee that attempts at collection under the LOC would be improper because no goods had been shipped and Brenntag had accordingly not defaulted.

Notwithstanding actual knowledge that Brenntag was not in default, Banerjee thereafter made repeated requests to Petro for a fresh default letter so that it might attempt to collect under the LOC. See id. at 340. Banerjee testified that he made these requests because the signatories on the undated letter in BOI's possession were no longer authorized to sign on Petro's behalf. Accordingly, the letter was facially invalid. When Petro denied BOI's requests for a new default letter, BOI date-stamped the original undated default letter and, on March 17, 1997, presented it to NDL along with its demand for payment under the LOC. See id.

On March 18, 1997, NDL notified BOI by telex that the documents it submitted contained inconsistencies and could not support payment. Numerous problems with the bill of lading were noted, and NDL indicated that it had never received original copies of the supporting documents as required by the LOC. Also, the amount owed as reflected on the invoice and the undated default letter were different. After BOI disputed the claimed inconsistencies, NDL restated its belief that the documents submitted did not conform with the LOC requirements. NDL also reminded BOI that it had never received from Petro the original documents required under the LOC. See id. at 340-41.

After BOI attempted to collect under the LOC, Ashok's attorney sent a letter to BOI instructing it to withdraw its "unauthorized and wrongfully lodged" claim, "as both the signatories were not in employment of Petro [ ] on the material date, nor was the letter of default in accordance with the terms of the [LOC]." Id. at 341 (quoting letter). The letter also restated Ashok's admission of potential personal liability for the debt owed to BOI.

On April 16, 1997, Brenntag instituted the present action against NDL and BOI seeking to enjoin payment on the LOC. Brenntag concurrently moved for a temporary restraining order, which was granted that day, and a preliminary injunction, which was granted on June 18, 1998, and from which BOI now appeals.

DISCUSSION

We review appealable interim orders, including the grant or denial of a motion for a preliminary injunction, with considerable deference, although we apply greater scrutiny where the order would effectively award victory in the litigation. See Romer v. Green Point Sav. Bank, 27 F.3d 12, 16 (2d Cir.1994). However, the injunction in this case merely preserves the status quo pending resolution of the underlying action, and we therefore review its issuance with the usual deference.

To justify the issuance of preliminary injunctive relief, a party must ordinarily show that it will suffer irreparable harm and either a likelihood of success on the merits or sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the movant's favor. See Tom Doherty Assocs., Inc. v. Saban Entertainment, Inc., 60 F.3d 27, 33 (2d Cir.1995). As a general matter, because monetary injury can be estimated and compensated, the likelihood of such injury usually does not constitute irreparable harm. See Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979) (per curiam). However, a perhaps more accurate description of the circumstances that constitute irreparable harm is that where, but for the grant of equitable relief,...