Algemene Bank v. Soysen Tarim Urunleri Dis Ticaret, 89 Civ. 7427 (PNL).

• Decision Date: 09 October 1990
• Docket Number: No. 89 Civ. 7427 (PNL).,89 Civ. 7427 (PNL).
• Citation: 748 F. Supp. 177
• Parties: ALGEMENE BANK NEDERLAND, N.V., Plaintiff, v. SOYSEN TARIM URUNLERI DIS TICARET VE SANAYI, A.S., Egebank A.S. Izmir Branch, Barrow Lane and Ballard Ltd. and HTC Commodity Corp., Defendants.
• Court: U.S. District Court — Southern District of New York

748 F. Supp. 177

ALGEMENE BANK NEDERLAND, N.V., Plaintiff, v. SOYSEN TARIM URUNLERI DIS TICARET VE SANAYI, A.S., Egebank A.S. Izmir Branch, Barrow Lane and Ballard Ltd. and HTC Commodity Corp., Defendants.

No. 89 Civ. 7427 (PNL).

United States District Court, S.D. New York.

October 9, 1990.

COPYRIGHT MATERIAL OMITTED

Lowenthal, Landau, Fischer & Ziegler, Charles S. Biener, of counsel, New York City, for plaintiff.

Robert Funicello, White Plains, N.Y., for Barrow Lane, Ballard & HTC Commodity.

Dogan & Morrissey, Kenneth S. Schechner, O.C., New York City, for Soysen Tarim, and Egebank.

OPINION AND ORDER

LEVAL, District Judge.

This is an action for interpleader pursuant to 28 U.S.C. § 1335. Algemene Bank Nederland N.V. ("Algemene"), the issuer of a letter of credit, has paid the proceeds into court, serving notice on various contesting parties, and moves for an order of discharge and release from liability under 28 U.S.C. § 2361.

The defendants fall into two camps: Defendant Soysen Tarim Urunleri Dis Ticaret Ve Sanayi A.S. ("Soysen") is the specified beneficiary of the letter of credit. Soysen drew a draft on the credit in favor of Soysen's creditor, defendant Egebank A.S., Izmir Branch ("Egebank"). Soysen and Egebank move for summary judgment directing payment of the proceeds to Egebank.

The other camp consists of defendants Barrow Lane and Ballard Ltd. ("Barrow"), the account party at whose instance the letter of credit was issued by Algemene, and Barrow's parent, HTC Commodity Corp. ("HTC"), which levied against the proceeds in an effort to enforce a judgment in its favor against Soysen. Barrow and HTC crossmove for summary judgment in favor of HTC.

The facts are as follows: Algemene issued an irrevocable documentary letter of credit for $40,481.25, at Barrow's request and with Soysen as the designated beneficiary (the "Letter of Credit"). The Letter of Credit was procured by Barrow as the means of payment to Soysen for its shipment of Turkish apricots to Barrow.¹ The Letter of Credit was payable by "sight draft," in favor of Soysen upon its presentation of documents evidencing the shipment's arrival in New York and its successful passage through U.S.F.D.A. inspection. Payment was to be made within 15 business days of the vessel's arrival. On September 23, 1989, Soysen prepared a draft on the letter of credit in favor of Egebank, its "negotiating bank," presumably to secure a borrowing.

On October 25, 1989, Soysen presented the specified documents to Algemene, together with the draft dated September 23, 1989 directing Algemene to pay the face amount of the Letter of Credit to Egebank. The vessel had arrived in New York on October 24, 1989; Algemene was thus required to make payment before November 10, 1989.

On November 1, 1989, before Algemene had paid the draft, it was served with a sheriff's levy and order of execution asserting a claim by HTC to a substantial portion of the proceeds. The levy was based on a judgment previously obtained by HTC against Soysen in New York State Supreme Court, confirming an arbitration award in HTC's favor after a dispute over goods shipped to HTC in 1988, and awarding HTC $34,679.86.

In light of these two competing claims to payment of the proceeds, fearing litigation and the risk of double liability if it paid either claimant, Algemene commenced this interpleader action on November 6, 1989 and deposited the face amount of the Letter of Credit into the court registry.

Discussion

A. Algemene's Motion for Discharge

Algemene moves for an order pursuant to 28 U.S.C. § 2361,² permitting it to be discharged from this action and protecting it against further liability. Algemene argues that a discharge is justified because it has complied fully with the requirements of 28 U.S.C. § 1335,³ and because it asserts no right to the disputed moneys and no claim against any of the defendants other than this interpleader.

Soysen and Egebank oppose Algemene's motion for discharge. They argue that Egebank is entitled to the proceeds based on the draft delivered to Algemene on October 25, and that the interpleader was therefore wrongfully commenced. They assert that Soysen, the beneficiary, had assigned the proceeds to Egebank September 23, 1989, to secure Egebank's advance of funds. They argue that once Algemene was notified of the assignment, the proceeds of the Letter of Credit ceased to be the property of Soysen and became the property of Egebank, and Algemene was obligated to turn them over to Egebank regardless of the later-served sheriff's levy attempting to attach assets of Soysen. This obligation was so certain, they contend, that Algemene's commencement of an interpleader action constituted frivolous litigation, and Algemene should not be entitled to be discharged until Egebank has been paid.⁴

These arguments are not persuasive. Regardless of whether Egebank may ultimately prevail in collecting on the Letter of Credit, Algemene was faced with multiple claims and a significant risk of litigation if it favored one claimant over another. HTC's competing claim was not patently invalid. The purpose of the federal interpleader statute, 28 U.S.C. § 1335, is to allow a party in such a situation to avoid the risk of double liability and litigation if it chooses one claimant over the other. Algemene was fully justified in invoking interpleader. Having done so, and having complied with the statutory requirements, Algemene is now entitled to a discharge and protection against further liability, pursuant to 28 U.S.C. § 2361.

Algemene's motion for discharge is granted.

B. Egebank's Motion to be Excused its Late Filing

Egebank moves to be excused for the late filing of its motion in lieu of an answer, or in the alternative for leave to answer out of time. Egebank received the summons and complaint on February 1, 1990. It contends that it did not answer immediately because, being a Turkish company with little knowledge of the Federal Rules of Civil Procedure, it had doubts about whether the action had been properly commenced or served. Egebank's doubts were based in part on the fact that the summons and complaint did not bear the signature or seal of the District Attorney, which it contends is the "usual custom." Egebank states that its understanding of Letters of Credit also led it to believe the interpleader action was a "nullity" and therefore no answer was required. It argues that it retained New York counsel as soon as it learned that it could be held in default for not answering. Karabayi Affidavit.⁵

In any event, Egebank retained New York counsel on March 16, 1990 (the same counsel that Soysen had previously retained and who had prepared Soysen's answer). Counsel avers that he immediately sought the permission of the parties for Egebank to answer or move. While Algemene's counsel had no objection, counsel for Barrow and HTC refused to sign such a stipulation. Schechner Affidavit of May 14, 1990. On March 22, 1990, Egebank's counsel wrote to the court indicating its intention to move for leave to answer or move, and a conference was set for April 19. At that conference, Egebank's counsel again indicated its intent to move for leave, and also requested that plaintiff provide proof of proper service on Egebank. Plaintiff's counsel represented that he believed Egebank had been served, and that documentation of service would be provided. On May 8, 1990, Egebank's counsel again requested the documentation. Proof of service was not provided until June 12. In the meantime, on May 11, Egebank filed its motion for leave to answer or move. Several days later, Soysen and Egebank together moved to dismiss the interpleader or for summary judgment.

Barrow and HTC now argue that Egebank's delay of more than two months should not be excused, and that its summary judgment motion should be disregarded, because Egebank's explanation for the delay is insufficient to constitute "excusable neglect" under Rule 6(b).

I do not agree. While Egebank was negligent in ignoring for five weeks the summons and complaint it received on February 1, its lack of familiarity with the rules of United States courts mitigates its negligence to some degree. Moreover, once Egebank learned that it could be held in default for not answering, it moved swiftly to remedy the error — retaining New York counsel and immediately contacting the other parties for the purposes of obtaining a stipulation permitting it to answer. At this point it was only two weeks in default. The further delay resulted from Barrow's unwillingness to excuse the brief default.

Egebank's delay in filing is excused.

C. The Cross-Motions for Summary Judgment

Soysen and Egebank on the one hand, and Barrow and HTC on the other, move for summary judgment on the issue of entitlement to the proceeds of the Letter of Credit. At issue is whether Soysen made a valid assignment prior to HTC's levy against the assets of Soysen in Algemene's possession. Barrow and HTC argue that the Letter of Credit was not assignable because it did not expressly authorize transfer or assignment. They also argue that the October 25 presentment of the draft did not vest any rights in Egebank prior to HTC's service of the sheriff's levy on November 1, because the draft had not yet been accepted in writing (or "certified") by Algemene. Soysen and Egebank argue that the assignment was valid and transferred all rights to the proceeds to Egebank as of October 25.

The Letter of Credit provides that it is subject to the Uniform Customs and Practice for Documentary Credits (1983 Revision), International Chamber of Commerce, Publication No. 400 ("UCP-ICC"). Complaint Ex. B. When a letter of credit so provides, Article 5 of the New York Uniform Commercial Code ("NY-UCC"), which would otherwise govern disputes under letters of credit, "does not apply," although analogies to the NY-UCC may be drawn where the two bodies of law are not in conflict. See NY-UCC § 5-102(4); United...