Brenntag International v. Norddeutsche Landesbank

• Decision Date: 05 November 1999
• Docket Number: No. 97 Civ. 2688(RWS).,97 Civ. 2688(RWS).
• Citation: 70 F.Supp.2d 399
• Parties: BRENNTAG INTERNATIONAL CHEMICALS, INC., Plaintiff, v. NORDDEUTSCHE LANDESBANK GZ and Bank of India, Defendants.
• Court: U.S. District Court — Southern District of New York

70 F.Supp.2d 399

BRENNTAG INTERNATIONAL CHEMICALS, INC., Plaintiff, v. NORDDEUTSCHE LANDESBANK GZ and Bank of India, Defendants.

No. 97 Civ. 2688(RWS).

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

November 5, 1999.

COPYRIGHT MATERIAL OMITTED

Katten, Muchin & Zavis, Chicago, IL, James C. Murray, Jr., Christian T. Kemnitz, of counsel, Howard, Darby & Levin, New York City, Linda C. Goldstein, of counsel, for plaintiff.

McDermott, Will & Emery, New York City, Banks Brown, of counsel, for Defendat Norddeutsche Landesbank GZ.

Sidley & Austin, New York City, James D. Arden, John J. Lavelle, of counsel, for Defendant Bank of India.

OPINION

SWEET, District Judge.

Brenntag International Chemicals, Inc. ("Brenntag") has moved, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for summary judgment, seeking to permanently enjoin defendant Bank of India ("BOI") from drawing upon a standby letter of credit (the "LOC") issued by defendant Norddeutsche Landesbank GZ ("Nord/LB"). For the reasons set forth below, the motion is granted.

Brenntag, through aggressive and effective lawyering, has previously succeeded in securing jurisdiction in this forum and obtaining a preliminary injunction. See Brenntag Int'l Chems., Inc. v. Norddeutsche Landesbank GZ, 9 F.Supp.2d 331 (S.D.N.Y.1998) (the "Injunction"), aff'd sub nom., Brenntag Int'l Chems., Inc. v. Bank of India, 175 F.3d 245 (2d Cir.1999) (the "Appeal"). Now, proffering much the same facts and argument as in the Injunction and Appeal, Brenntag seeks summary judgment and final relief. BOI disputes certain peripheral factual matters, but the critical fact at the center of this case remains unchanged: BOI took an undated default letter from beneficiary Petro Pharma Pte, Ltd. ("Petro Pharma"), paid Petro Pharma approximately $2.4 million for the LOC and its supporting documentation, including the default letter and certain false papers, and, when the LOC became due, stamped an appropriate date on the default letter and presented it along with the other documentation to Nord/LB for payment. These actions, even when viewed in the light most favorable to BOI, deprived BOI of holder in due course status and bar its recovery.

Prior Proceedings

Brenntag initiated this action on April 16, 1997, seeking an injunction to bar payment on the LOC. A preliminary injunction was granted, which was affirmed by the Appeal on April 26, 1999.

During and after these events, discovery proceeded, including document production and the taking of depositions of almost all of the participants in the events at issue.

The instant motion was marked fully submitted on September 1, 1999.

The Parties

Brenntag is a Texas corporation with its principal place of business in Houston, Texas.

Nord/LB is a foreign banking organization, formed under the laws of Germany, with its principal place of business in Germany. It has offices in New York, New York.

BOI is a foreign banking organization formed under the laws of India, with its principal place of business in India. BOI has banking offices in Singapore and New York, New York, among other places. BOI is an "agency or instrumentality" of India which carries on commercial business at its place of business in New York.

The Facts

Although the facts have previously been recounted in rather exhaustive fashion in the Injunction, see Brenntag, 9 F.Supp.2d at 333-41, and the Appeal, see Brenntag, 175 F.3d at 247-49, familiarity with which is assumed, they are set forth again below, cast in the light most favorable to BOI as the non-moving party in a summary judgment motion.

The case before the Court is a murky tale of a letter of credit and a shipment — or lack thereof — of naphtha.¹

Brenntag and Petro Pharma are chemical companies, which, at the time of the crucial events giving rise to the instant action, had an ongoing relationship. Robert Veenkuyzen ("Veenkuyzen"), who became president of Brenntag in 1994, had previously been a vice-president of Lucky Goldstar International (America) Inc. ("LGIA"). LGIA had acted in 1993 as the middleman on a transaction between Petro Pharma and Reliance Industries Limited ("Reliance"), in which Petro Pharma sold naphtha to LGIA, which sold it in turn to Reliance. In connection with that transaction, LGIA procured a standby letter of credit in favor of Petro Pharma.

In May 1995, Petro Pharma opened an account at BOI, which obtained from Narasimhan Ashok ("Ashok") and Mrs. Rema Ashok ("Mrs.Ashok"), both principals of Petro Pharma, personal guarantees of Singapore $5 million, as well as a corporate guarantee. Transactions between Brenntag and Petro Pharma, similar to the one described in the previous paragraph between LGIA and Petro Pharma, were structured on at least two occasions prior to the transaction at issue in the instant action. In those prior transactions, Petro Pharma sold chemicals to Brenntag, which in turn re-sold them to a third party. In both cases, Brenntag obtained from Nord/LB a standby letter of credit to pay for the chemicals. Petro Pharma, the beneficiary of the letters, each time negotiated them with the necessary supporting documentation to BOI. This supporting documentation included undated claim letters submitted prior to the due date, and an independent inspection report that the goods had been physically loaded for transportation and delivery.

By early 1996, Petro Pharma was indebted to Brenntag in excess of $1 million. Brenntag pressed for payment, and on February 16, 1996, Ashok advised Veenkuyzen that Petro Pharma would shortly make a first payment of $700,000 and that "Reliance is helping with some loan." John Pichola ("Pichola"), Brenntag's controller, advised Veenkuyzen that Petro Pharma was working on a "packing loan" to reduce its debt to Brenntag.

A packing loan is a form of short-term, pre-shipment financing by which a supplier obtains funds to purchase, process, and pack goods for shipping. It is not a loan generally used to pay down antecedent debt and lasts only until the shipment is made and shipping documents are generated, at which time the documents are to be negotiated under a letter of credit, the proceeds then being used to pay off the packing loan. On March 6, Pichola telexed Ashok inquiring about the status of the loan.

On March 19, 1996, Brenntag received a wire transfer of $780,000 from Petro Pharma. Brenntag also received an unsigned contract from Reliance, dated March 13, 1996, for a purchase of naphtha from Brenntag. Brenntag also issued a contract to purchase naphtha from Petro Pharma, and agreed to provide a standby letter of credit in Petro Pharma's benefit to secure payment for the naphtha. Brenntag did not request a letter of credit from Reliance, although such letters had been required in the two previous transactions.

On March 21, 1996, Brenntag caused its bank, Nord/LB, to issue the LOC for the benefit of Petro Pharma in the amount of $2,340,000, plus or minus five percent. The LOC was "payable at sight, but not earlier than 361 days after the loading date, at [Nord/LB's] counters, against presentation" of (1) an invoice for the specified quantity of naphtha; (2) a copy of a negotiable bill of lading; (3) a copy of the beneficiary's covering letter; and (4) a statement from Petro Pharma that "payment, which was due 360 days after completion of loading, has not been received and is due from Brenntag International Chemicals, Inc." (the "Default Letter").

The LOC restricted negotiation to BOI, required that Petro Pharma send all original negotiable documents directly to Nord/LB upon shipment, and was subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), Publication No. 500 of the International Chamber of Commerce, Paris, France (the "UCP").

On March 22, 1996, the Letter of Credit was amended to change the expiration date from March 17, 1997 in New York to June 30, 1997 in New York. Nord/LB sent the amendment to BOI. Also on March 22, Petro Pharma wrote to BOI to request negotiation of the LOC. The request was signed by Petro Pharma Treasury Director B. Aranprasad ("Prasad") and Finance Manager Venkat A. Iyer ("Iyer"), both of whom, at the time, were authorized signatories of Petro Pharma. Before joining Petro Pharma, Prasad worked at BOI for four years as the Manager of Trade Finance (Export), where he dealt with letters of credit. Some Nath Banerjee ("Banerjee"), who assumed Prasad's responsibilities at BOI, knew Prasad. Banerjee was responsible for evaluating Petro Pharma's negotiation request.

Attached to the request letter were the documents purportedly required by the LOC: (1) an alleged copy of the "covering letter" to Nord/LB which acknowledged that Petro Pharma had sent all original negotiable documents to Nord/LB in New York via courier service directly upon shipment (the "Covering Letter"); (2) an alleged copy of a bill of lading purporting to evidence the shipment of naphtha on March 18, 1996 (the "Bill of Lading"); (3) an invoice for $2,483,605.48 (the "Invoice"); and (4) an undated claim letter form (the "Default Letter").

The Default Letter — which was undated — stated that Brenntag's "payment, which was due 360 days after completion of loading, has not been received and is due from Brenntag International Chemicals, Inc." It was signed by Prasad and Iyer. Banerjee, who reviewed the documents, acknowledged in deposition testimony that he knew that the statement in the Default Letter that payment was overdue was not true and could not have been true at the time he reviewed the documents.

The Invoice, dated March 18, 1996, stated that payment terms were "360 days from the bill of lading" for $2,483,605.48, based on the unit price of $158/metric ton. This amount was inconsistent with the LOC value of $2,340,000. BOI initially noted this as a "discrepancy" on its internal form and pointed out the inconsistency to Petro Pharma.

The Invoice was false. The M/T Crystal River, listed as the carrier...