McCormack v. Citibank, N.A.

• Decision Date: 11 September 1996
• Docket Number: No. 96-1170,96-1170
• Parties: Michael MCCORMACK, Appellant, v. CITIBANK, N.A., a corporation; National Bank of Commerce Trust & Savings Association, a corporation; First Westroads Bank, a corporation, Appellees. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 532

100 F.3d 532

Michael MCCORMACK, Appellant, v. CITIBANK, N.A., a corporation; National Bank of Commerce Trust & Savings Association, a corporation; First Westroads Bank, a corporation, Appellees.

No. 96-1170

United States Circuit Court of Appeals,

Eighth Circuit

Submitted: September 11, 1996

Decided: November 5, 1996

Appeal from the United States District Court for the District of Nebraska.

Eugene L. Hillman, Argued, Omaha, NE, for appellant.

Thomas F. Flaherty, argued, Omaha, NE, for appellee.

Before: MAGILL, FLOYD R. GIBSON, and LAY, Circuit Judges.

MAGILL, Circuit Judge.

Michael McCormack appeals the district court's ¹ order granting summary judgment to three defendant banks: First Westroads Bank (First Westroads), National Bank of Commerce Trust and Savings Association (NBC), and Citibank, N.A. (Citibank). McCormack, who filed this suit as the subrogee of Acoustical Engineering, Inc. (Acoustical), alleges breach of contract and negligence by the defendant banks in connection with a letter of credit and guarantee transaction. On appeal, McCormack argues that genuine issues of material fact remain. He also argues that the district court committed reversible error by failing to hold oral argument on the defendant banks' summary judgment motion. We affirm.

I.

A.

This case involves a complex international transaction between Acoustical and Obaid & Almulla Construction Company (Obaid), a Saudi Arabian corporation. At the heart of the matter are the questions of whether the defendant banks breached their contract with Acoustical or, in the alternative, breached a duty they owed to Acoustical.

Because this is an appeal from a grant of summary judgment, we must view the facts in the light most favorable to the nonmoving party. See Rifkin v. McDonell Douglas Corp., 78 F.3d 1277, 1280 (8th Cir. 1996). Accordingly, viewed in the light most favorable to McCormack, the facts that gave rise to this dispute are summarized below.

In November 1980, Acoustical entered into a contract with Obaid to furnish materials and labor as part of the construction of an airport terminal in Riyadh, Saudi Arabia. As part of this agreement, Obaid required that Acoustical have a Saudi bank issue a performance guarantee to Obaid in the amount of 5% of the value of Acoustical's construction contract, or approximately $150,000. The performance guarantee was like an insurance policy for Obaid; in the event that Acoustical failed to perform under the agreement, Obaid could draw on the guarantee.

To arrange for the performance guarantee, Acoustical contacted First Westroads, its local bank in Nebraska. Because First Westroads was unable to arrange the guarantee directly, First Westroads contacted its correspondent bank, NBC, which in turn contacted its correspondent bank, Citibank. Citibank ultimately contacted the Saudi American Bank (SAMBA), the Saudi bank that Acoustical and Obaid had chosen to issue the performance guarantee.

SAMBA issued a performance guarantee to Obaid on behalf of Acoustical. In support of this guarantee, Citibank issued a "clean sight credit" to SAMBA, see I Appellant's App. at 22, Ex. A; NBC agreed to reimburse Citibank upon demand; and First Westroads agreed to reimburse NBC upon demand. For its part, Acoustical agreed to cover the amount of the guarantee as well as pay the fees charged by the banks for their services. In this way, the economic burden of a draw by Obaid on the performance guarantee would flow through the banks and would ultimately be borne by Acoustical.

As part of their original understanding, Acoustical and Obaid had also agreed that the performance guarantee would be replaced by a maintenance guarantee upon completion of Acoustical's work. This second guarantee was to serve as a warranty for the work performed by Acoustical. Obaid could draw upon the maintenance guarantee if Acoustical did not perform necessary repairs. The maintenance guarantee was to run for a period of fourteen months from the date of the completion of Acoustical's work and was to be issued by a Saudi bank in the same amount as the performance guarantee. It is this second guarantee that gave rise to the dispute now before us.

In anticipation of the completion of Acoustical's performance on the construction contract,² Acoustical and Obaid, with the help of First Westroads and NBC, began to negotiate the exact terms to be included in the maintenance guarantee. Sometime before March 14, 1983, a draft of the maintenance guarantee was completed. Significantly, both Acoustical and Obaid agreed that Obaid could not draw on the maintenance guarantee unless Obaid first presented a "Certificate of Completion of the Works" (Certificate). The Certificate was also intended to signal the expiration of the prior performance guarantee and the start of the warranty period under the maintenance guarantee.

In a letter dated March 14, 1983, Acoustical again asked its local bank, First Westroads, to arrange for the maintenance guarantee to be issued by SAMBA, the Saudi bank that Acoustical and Obaid had once again chosen. This request initiated a process similar to the one used for the earlier performance guarantee: First Westroads enlisted the aid of its correspondent bank, NBC, which in turn contacted its correspondent bank, Citibank, which in turn contacted SAMBA.

To support the maintenance guarantee, First Westroads agreed to reimburse NBC on demand for any draws that NBC was required to pay to Citibank. NBC in turn agreed to reimburse Citibank on demand for any draws that Citibank was required to pay to SAMBA. NBC also requested in a March 21, 1983 telex that Citibank again issue a "clean sight credit" in favor of SAMBA, as it had previously done for the performance guarantee, so that SAMBA could be reimbursed for any draws made by Obaid on the maintenance guarantee. See I Appellant's App. at 16, Ex. 4. Finally, for its part, Acoustical agreed to cover the amount of the guarantee as well as pay the banks for their services.

Throughout the process of arranging the maintenance guarantee, the version of this guarantee drafted by Acoustical and Obaid was forwarded to each of the defendant banks in the chain and was ultimately passed along to SAMBA. Included in this document was the following language pertaining to the effectiveness of the maintenance guarantee:

THIS GUARANTEE BECOMES VALID AND SHALL TAKE EFFECT ONLY UPON THE ISSUANCE OF A CERTIFICATE

OF COMPLETION OF THE WORKS, BY OBAID AND ALMULLA CONSTRUCTION COMPANY LTD.

I Appellant's App. at 17, Ex. 2. This document also called for Citibank to issue the guarantee, even though Acoustical had specifically asked for SAMBA to issue the guarantee in its March 14 letter to First Westroads.

On April 11, 1983, SAMBA telexed Citibank to request certain clarifications and changes. This request was then relayed to NBC. On May 13, 1983, NBC in turn relayed SAMBA's request to First Westroads and to Acoustical's president, Gerald E. Carlson, via telex. This May 13 telex is crucial to understanding the dispute between McCormack and the defendant banks.

In keeping with Acoustical's March 14 letter, the telex requested acknowledgement that SAMBA, not Citibank, was to issue the maintenance guarantee. The telex also relayed SAMBA's request that certain language be added to the guarantee -- two portions of which are relevant here. The first portion pertained to the Certificate and to SAMBA's request for a "clean credit" to be issued by Citibank:

SAUDI AMERICAN BANK WILL BE NOTIFIED BY OBAID AND AL MULLAH THAT CERTIFICATE OF COMPLETION HAS BEEN ISSUED AND THAT THE GUARANTEE IS IN FULL FORCE ACKNOWLEDGED BY .M/S ACOUSTICAL ENGINEERING REQUIRED. PLEASE ISSUE A CLEAN CREDIT IN OUR FAVOR IN THE FOLLOWING FORMAT ENABLING US TO ISSUE THE GUARANTEE.

I Appellant's App. at 16, Ex. 6. The second portion also pertained to the letter of credit to be issued by Citibank to SAMBA:

IN CONSIDERATION OF YOUR ISSUING YOUR GUARANTEE IN FAVOR OF OBAID . . . WE IRREVOCABLY AND UNCONDITIONALLY CONFIRM THAT, UPON RECEIPT OF YOUR FIRST WRITTEN DEMAND, WE WILL PAY YOU THE AMOUNT DEMANDED NOT EXCEEDING THE LIMIT SET FORTH HEREIN, EACH DEMAND BY YOU SHALL BE EITHER IN THE FORM OF A TESTED TELEX OR A LETTER, IN EITHER CASE STATING THAT YOU HAVE BEEN CALLED UPON TO PAY OR HOLD VALUE FOR THE AMOUNT UNDER YOUR ABOVE MENTIONED GUARANTEE . . . .

Id. Finally, the May 13 telex advised Carlson: "PLEASE MAKE SURE YOU UNDERSTAND ALL OF THE POINTS OF THE AMENDMENT", id., and requested that Carlson and First Westroads sign the bottom of the telex in order to "[CONFIRM THEIR] AUTHORIZATION TO AMEND THE CREDIT." Id.

Unsure of what this language meant, Carlson first turned to McCormack, who was Acoustical's lawyer at the time. McCormack advised Carlson to ask NBC for advice. When asked for advice, NBC told Carlson that the amendments were essentially administrative changes. Evidently, Carlson believed that this assurance meant that none of the defendant banks would be obligated to pay unless a Certificate of Completion had been issued by Obaid. Acting on behalf of Acoustical, Carlson approved the terms of the May 13 telex in writing on May 26, 1983. First Westroads approved the changes as well.

After receiving this approval, SAMBA issued the maintenance guarantee and Citibank issued a letter of credit in SAMBA's favor as provided in the May 13 telex. Acoustical later approved in writing a series of amendments that extended the expiration date of both SAMBA's guarantee and Citibank's letter of credit.

In September 1985, SAMBA honored a draw by Obaid on the maintenance guarantee, despite the fact that Obaid had not issued a Certificate.³ After Acoustical was unsuccessful in obtaining an injunction, each of the defendant banks in turn honored their respective obligations to reimburse the next bank in the chain. First Westroads, as the bank at the end of the chain, then looked to Acoustical for payment. When...