245 F.3d 82 (2nd Cir. 2001), 99-7595, Hamilton Bank v Kookmin Bank

Docket Nº:99-7595
Citation:245 F.3d 82
Party Name:HAMILTON BANK, N.A., Plaintiff-Counter-Defendant-Appellant, v. KOOKMIN BANK (formerly The Citizen National Bank), Defendant-Cross-Claimant-Counter-Claimant-Appellee, SKY INDUSTRIES CORPORATION, Defendant-Cross-Defendant.
Case Date:March 15, 2001
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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245 F.3d 82 (2nd Cir. 2001)

HAMILTON BANK, N.A., Plaintiff-Counter-Defendant-Appellant,

v.

KOOKMIN BANK (formerly The Citizen National Bank), Defendant-Cross-Claimant-Counter-Claimant-Appellee, SKY INDUSTRIES CORPORATION, Defendant-Cross-Defendant.

No. 99-7595

United States Court of Appeals, Second Circuit

March 15, 2001

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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KEVIN C. LOGUE (Paul, Hastings, Janofsky & Walker LLP, William C. Rand, on the brief), New York, NY for Plaintiff-Counter-Defendant-Appellant.

ELLIOT SILVERMAN (McDermott, Will & Emery), New York, NY for Defendant-Cross-Claimant-Counterclaimant-Appellee.

Before: KEARSE and POOLER, Circuit Judges, and KORMAN, District Judge.[*]

POOLER, Circuit Judge

Plaintiff Hamilton Bank, N.A. ("Hamilton") issued a $ 1.5 million letter of credit on behalf of Sky Industries Corporation ("Sky") for the benefit of Sung-Jin Trading Co. ("SungJin"). The letter of credit contained several conditions including a requirement that the entity negotiating it provide an authenticated telex from Hamilton. Sung-Jin, a Korean company, negotiated the letter of credit to Kookmin Bank ("Kookmin"), a Korean financial institution, without the required telex and with certain other documents that may have been altered or forged. When Kookmin presented the letter of credit to Hamilton for payment, Hamilton refused, claiming that the documents presented did not meet the requirements of the letter of credit but failing to specify the particular deficiencies. Hamilton later issued a second but untimely disclaimer specifying the missing telex--and other deficiencies no longer at issue--as the reasons for its refusal to pay. Hamilton argues that Kookmin's negligence and/or its fraudulent collusion with Sung-Jin in initially accepting the documents precludes Kookmin from relying on the untimeliness of Hamilton's disclaimer. Hamilton also contends that Kookmin defamed Hamilton in a letter Kookmin sent to the Office of the Comptroller of the Currency ("OCC").

BACKGROUND

Hamilton Issues the Letter of Credit

Alex Halberstein, who acts as a broker for international companies seeking letters of credit, had a long standing relationship with Moises Cikurel, the owner of Sky Industries. Sky sought and Halberstein obtained letters of credit that neither the issuing financial institution nor Sky intended would be negotiated. Instead, Sky used the letters of credit to demonstrate that there was a business relationship between it and various Asian companies to which Sky sought to send exports. Through Halberstein's efforts, Sky eventually obtained a line of credit from Hamilton. The contract between Sky and Hamilton provided that each letter of credit Hamilton issued would require that, in order to obtain payment, the beneficiary must provide a tested or authenticated telex from Hamilton and that Hamilton would not send the required telex unless Sky previously had deposited the full value of the letter of credit with Hamilton. Thus, Hamilton believed itself to be protected against negligent or fraudulent negotiation of a letter of credit.

On June 11, 1996, Hamilton issued a $ 1.5 million letter of credit on behalf of Sky and for the benefit of Sung-Jin in connection with Sky's planned purchase of leather sport shoes from Sung-Jin. The letter provided that drafts could be negotiated "at 180 days after transport document date" upon presentation of the letter along with a bill of lading, an original and three copies of a commercial invoice and packing list, and a "copy of authenticated (sic)

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telex from issuing bank to advising bank, indicating quantity to be shipped, destination, and nominating transporting company." The letter also specified that it was issued pursuant to the Uniform Customs and Practice for Documentary Credits ("UCP") (1993 revision) ICC Pub. No. 500. Hamilton amended the letter of credit three times. The only change relevant to this litigation was made in the third amendment and provided

no further amendments of this 1/c will be issued by applicant, any other condition should be in accordance with 'option contract', signed by applicant and beneficiary dated May 31, 1986. ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. SUBJECT TO UCP 500.

Kookmin Negotiates the Letter of Credit

In June 1996, Sung-Jin's principal, Jin Kon Kim attempted to negotiate the letter of credit to Kookmin. Taek Su Jun, an employee of Kookmin, repeatedly told Kim that Kookmin would not accept the letter of credit without an authenticated telex, and Kim responded that he would take care of this problem. However, on July 13, 1996, Kim returned to Kookmin and again presented the amended letter of credit along with a purported option contract between Sky and Sung-Jin and special instructions allegedly signed by Sky but without the authenticated telex. The option contract contained two relevant provisions:

4) IT IS . . . CLEARLY UNDERSTOOD THAT THE ESTABLISHMENT OF THE DOCUMENTARY CREDIT IN FAVOUR OF THE EXPORTER BY THE APPLICANT DOES NOT CONSTITUTE IN ANY WAY A PURCHASE OF THE GOODS BY THE APPLICANT FROM THE EXPORTER, UNLESS THE APPLICANT EXECUTES THE OPTION AND CONFIRMS HIS DEFINITE PURCHASE, WHICH WOULD BE THROUGH THE ISSUING BANK'S TESTED TELEX. THE APPLICANT AND EXPORTER BOTH ACKNOWLEDGE THAT ISSUING BANK WILL NOT ISSUE SUCH TELEX, UNLESS FUNDS COVERING 100% OF THE VALUE OF THE LETTER OF CREDIT ARE DEPOSITED IN THE BANK, FULLY PLEDGED TO GUARANTEE SAME.

5) ACTUAL PURCHASING QUANTITY IS SUBJECT TO INCREASE OR DECREASE LESS THAN 10% THE DETAILS SUCH AS FINAL PURCHASING QUANTITY, DESTINATION, SHIPPING COMPANY AND SO FORTH WILL BE INSTRUCTED THROUGH LETTER OF CREDIT OR SPECIAL INSTRUCTIONS BY SKY INDUSTRIES CORPORATION.

The special instructions allowed Sung-Jin to choose the transportation company and provided that the shoes must be shipped to New York. In addition, Kim gave Jun a bill of lading representing that 40,000 pairs of sport shoes had been loaded on board the Hanjin Savannah on July 12, 1996.

Jun testified that Kim persuaded him that the option contract--with its reference to special instructions--eliminated the authenticated telex requirement. Although Jun never had heard of Sung-Jin prior to that company's attempts to negotiate the letter of credit, he accepted it. Jun first asked for security but later decided to rely on insurance through the Korean Export Insurance Authority. On the day he negotiated the letter, Jun contacted Hamilton's advising bank in Korea, Dongnam Bank, to determine whether the letter of credit and amendments were authentic but did not ask whether the option contract and special instructions replaced the

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authenticated telex as a basis for negotiating the letter.

Hamilton's Rejection

On July 22, 1996, Kookmin presented the letter of credit, draft, and shipping documents to Hamilton in order to obtain payment. Hamilton returned the documents to Kookmin via DHL courier on July 24, 1996, along with a letter stating that Hamilton would not honor the letter because presentment was "not in compliance with the terms and conditions of the credit." Kookmin received the documents on July 27, 1996, and presented them again on August 2, 1996. On August 6, 1996, Hamilton rejected the presentation a second time. On that date, Kookmin also received a "SWIFT," which we assume to be a telecommunication, from Hamilton explaining that Hamilton rejected the presentation because it lacked an authenticated telex.

Kookmnin Attempts to Recoup its Loss From Sources Other than Hamilton

Jun testified to several attempts he made to recoup Kookmin's loss from Sung-Jin. First, he unsuccessfully attempted to call Kim several times. In August 1996, Jun went to Sung-Jin's office and found it empty and unlocked. After this visit, Jun sent Kim a message to call him, and the two had two or three subsequent telephone conversations, all of which were initiated by Kim. Jun testified he requested a meeting with Kim. Although Jun asked Kim to come to his office, Kim refused. Jun and Kim subsequently had a Sunday meeting in a schoolhouse where Kim gave Jun approximately $ 31,319. Jun returned this money to Kookmin the next day. Jun also claimed that he sent a letter demanding repayment to Kim at his home address.

In March of 1997, Kookmin's insurance carrier disclaimed coverage based on Kookmin's "serious negligence" in accepting the letter of credit. Fifteen months later, Kookmin disciplined Jun for his failure to follow appropriate procedures.

No-one ever retrieved the goods covered by the letter of credit, and ultimately, U.S. customs officials sold them at a public auction which realized $ 25,000.

The Allegedly Libelous Letter

Kookmin also continued to pursue its claim against Hamilton. On October 14, 1997--after negotiations and demands failed--Kookmin faxed a letter to the United States Comptroller of the Currency with copies to several OCC officials. Kookmin complained that Hamilton refused to honor its irrevocable letter of credit, claimed to have evidence that Hamilton had issued "similar documents with same results," and stated, "We believe Hamilton . . . has committed fraud.1 In

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response, OCC first contacted Hamilton, which explained that the documents Kookmin proffered did not conform to the letter of credit, and then asked Kookmin if it had any specific evidence that Hamilton had issued similar documents in the past or that it had committed fraud. Kookmin sent the Comptroller documentation related to the transaction at issue in this lawsuit and explained that Hamilton, in contravention of the UCP, failed to specify the deficiencies in Kookmin's presentation and used mail rather than telex and thus caused Kookmin to lose its opportunity to retrieve its money from Sung-Jin. Kookmin also submitted a similar letter of credit issued by Hamilton to Ssangyong Bank...

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