Oei v. Citibank, N.A., 96 Civ. 3737 (MBM).
| Decision Date | 20 March 1997 |
| Docket Number | No. 96 Civ. 3737 (MBM).,96 Civ. 3737 (MBM). |
| Citation | 957 F.Supp. 492 |
| Parties | Rudy T. OEI and M.J.F.M. Kools, d/b/a Kools de Visser, Plaintiffs, v. CITIBANK, N.A. and Citibank International, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Dorothea W. Regal, Claire Costello, Kathleen L. Lowden, Hoguet Newman & Regal, New York City, for Plaintiffs.
Joel David Sharrow, Michael Evan Avidon, Mitchell D. Bernstein, Moses & Singer, New York City, for Defendants.
Plaintiffs, Rudy Oei and M.J.F.M. Kools, the sole proprietor of Kools de Visser, sue Citibank N.A. ("Citibank") and Citibank International ("Citibank Int'l"), for fraud and aiding and abetting fraud, and Citibank for wrongful honor and conversion, arising out of payment on a letter of credit issued by Citibank at Oei's direction as part of a transaction in which plaintiffs sought to purchase Levi jeans. Defendants move to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), or in the alternative, for a summary judgment, dismissing all claims, and striking plaintiffs' demands for consequential and punitive damages and for a jury trial. Defendants move also to dismiss the fraud and aiding and abetting fraud claims pursuant to Fed. R.Civ.P. 9(b). Plaintiffs cross-move for summary judgment on the wrongful honor claim. For the reasons given below, defendants' motion to dismiss, or in the alternative for summary judgment, is granted as to plaintiffs' conversion claim and the fraud and aiding and abetting claims against Citibank, but denied as to the other claims. Defendants' motion to strike plaintiffs' demand for punitive damages on the fraud claim is denied, but their motions to strike plaintiffs' demands for consequential and punitive damages on the wrongful honor claim and for a jury trial are granted. Defendants' motion to dismiss pursuant to Rule 9(b) is denied. Plaintiffs' cross-motion for summary judgment on the wrongful honor claim is granted.
On January 5, 1995, I dismissed an action brought by M.J.F.M. Kools against Citibank, because Kools, as an undisclosed principal, lacked standing to sue for wrongful honor of a letter of credit issued by Citibank at Oei's application, allegedly as agent for Kools. Kools v. Citibank, 872 F.Supp. 67 (S.D.N.Y. 1995), certifying question to New York Court of Appeals, 73 F.3d 5 (2d Cir.1995), opinion withdrawn, No. 95-7209, 1996 WL 450776 (2d Cir. Aug.5, 1996). Kools appealed, but then withdrew that appeal and filed this action together with Oei.
Familiarity with my previous opinion is assumed. The following facts are drawn from the complaint, and the parties' affidavits, exhibits and Rule 3(g) statements: Oei is a resident of Connecticut and a retired IBM product manager. (Compl. ¶ 1; Oei 9/9/96 Aff. ¶ 2) Kools de Visser ("Kools") is a Netherlands sole proprietorship with its principal place of business in Bergen Op Zoom, the Netherlands, and is owned by M.J.F.M. Kools and managed by Wilhelmus Kools. (Compl. ¶ 2; M.J.F.M. Kools 9/9/96 Aff. ¶ 3) Kools sells clothing at wholesale and retail in the Netherlands. (Compl. ¶ 2) In 1992, Kools retained Oei as a broker to purchase on its behalf Levi jeans made in the United States. (Compl. ¶ 8; Pl. 3(g) ¶ 1) Oei arranged a transaction with Jade-USA, Inc., which purported to be a supplier of such jeans and which agreed to supply 43,200 pairs of Levi jeans at $23.25 a pair, for a total cost of $1,004,400. (W. Kools 9/9/96 Aff. ¶ 12)
To effect this transaction, Oei applied for a letter of credit from Citibank. (Pl. 3(g) ¶ 2; Def. 3(g) ¶ 1) The Application and Agreement for Commercial Letter of Credit ("Application Agreement"), dated October 28, 1992, provided that Citibank would issue a letter of credit in the amount of $1,004,400, with Jade designated as beneficiary, for the purchase of "LEVI JEANS 501-0191, New, Originals, Made in USA." The Application Agreement provided that it was to be governed by the Uniform Customs and Practice ("U.C.P.") for Documentary Credits as most recently published by the International Chamber of Commerce, i.e., the 1983 version of the U.C.P. [hereinafter "U.C.P. 400"], and by the laws of the state of New York, except to the extent that such laws are inconsistent with the U.C.P. (Compl., Ex. A ¶ 17) On October 20, 1992, Kools transferred $1,080,000 into Oei's and his wife's joint checking account at Citibank. (Def. 3(g) ¶ 11) Then, on October 30, 1992, Oei deposited $1,004,400 (plus certain letter of credit fees for Citibank totalling approximately $8,000) from this account into a Citibank savings account in his name, in Totten trust for his wife, to secure Citibank's payments under the letter of credit.
On October 30, 1992, Citibank actually issued the Letter of Credit, with Citibank International ("Citibank Int'l"), a Citibank affiliate located in Miami, acting as advising bank.1 Citibank Int'l functioned as advising bank for the amendments to the letter of credit and also collected the documents from the beneficiary for shipment to the issuer, Citibank, although its other roles in the transaction are disputed.
The letter of credit, as amended on November 2 and 4, 1992, required that to redeem the funds, Jade was to submit specified documents to Citibank conforming to certain requirements, including those set forth in the U.C.P. 400. (Compl., Ex. B) These documents included: 1) a sight draft bearing the identifying reference specified in the letter of credit; 2) an original and four copies of Jade-USA's commercial invoice for merchandise described as "LEVI JEANS 501-0191, NEW, ORIGINALS, MADE IN USA LABELS"; 3) an insurance policy or certificate; 4) all originals of a "MARINE/ON BOARD OCEAN BILL OF LADING OR CONTAINER BILL OF LADING OR BILL OF LADING BEARING CONTAINER ENDORSEMENT" issued to Kools, to be marked "NOTIFY RUDY T. OEI" and "FREIGHT PAID"; 5) a packing list; and 6) a certificate of compliance of quality and inspection by Lloyds of London. (Compl., Ex. B)
Defendants claim that plaintiffs were aware that Jade would submit false documents. Although the letter of credit required "on board" bills of lading and the goods were to be described as "genuine" Levi jeans, defendants claim that plaintiffs were aware that the beneficiary, Jade, would be paid before the goods were loaded on board a ship (Sharrow 7/10/96 Decl., Exs. 17-18; Id., Ex. 5 at 85), and that the jeans that would be shipped would be counterfeit. Plaintiffs deny both allegations.
On November 18, 1992, Jade presented Citibank Int'l with documents requesting payment under the letter of credit. (Def. 3(g) ¶ 21; Pl. 3(g) ¶ 5) These documents did not conform to the letter of credit requirements. They included a truck bill of lading, rather than a marine bill of lading, issued by Eagle Freight Services, purporting to show shipment by truck from Seattle, Washington, to Rotterdam, the Netherlands. (Pl. 3(g) ¶ 5; Compl., Ex. C) In addition, the bill of lading contained several other discrepancies: it was dated five days later than the date on which Citibank Int'l received it; it failed to identify the goods; and it named Jade, rather than Kools, as consignor. (Compl. ¶¶ 16-17) As a result of these and other discrepancies (Compl., Ex. D), Citibank Int'l notified Jade that it would not accept the documents. (Def. 3(g) ¶ 23) The discrepancy report created by Citibank Int'l employee Luis Castellanos states that Diann Hart, Jade's president, told him to "hold on" to the documents, and that Jade would submit new ones. (Compl. ¶ 19, Ex. D; Def. 3(g) ¶ 24) Plaintiffs claim that Citibank Int'l should have known that the documents were fraudulent, rather than merely discrepant, both because of the above discrepancies and because Jade's request that Citibank Int'l hold the documents was unusual as bills of lading are negotiable and a shipping company would not issue a corrected bill of lading without return of the original. (Compl. ¶ 20; Colleran 9/7/96 Aff. ¶ 33)
On or about November 24, 1992, Jade presented new documents requesting payment under the letter of credit, including a marine bill of lading issued by Sea-Land Services, Inc. (Compl. ¶ 22; Def. 3(g) ¶ 25) Once again, these documents contained discrepancies, and once again, Citibank Int'l's discrepancy report stated that Jade would "fix" the problem and that the bank would hold the documents. (Compl. ¶ 24, Ex. F; Def. 3(g) ¶ 28) Plaintiff alleges that Citibank Int'l should have been aware that these documents were fraudulent because it was now in possession of two different bills of lading for the same goods, which showed that two shippers had received the same goods for shipment. In addition, the method of shipment in each bill of lading was different, one by land and one by sea. (Compl. ¶ 25; Pl. 3(g) ¶ 16)
On November 30, 1992, Jade presented a third set of documents requesting payment under the letter of credit for the third time. (Compl. ¶ 27 & Ex. H) Plaintiff alleges that these documents were also discrepant and inconsistent in many ways and were fraudulent on their face. (Compl. ¶ 29) Citibank Int'l forwarded the documents to Citibank without paying Jade, mistakenly omitting the inspection document from the package of documents. (Def. 3(g) ¶¶ 30-31) Plaintiffs, in reliance on testimony given by Hart in a previous action (Compl. ¶ 36; Sharrow 7/10/96 Decl., Ex. 10), claim that Luis Castellanos, the Citibank Int'l employee who checked the documents submitted by Jade altered them by typing "Levi JEANS 501 0191 NEW ORLEANS, MADE IN USA LABELS" onto the face of the inspection document. (Compl. ¶ 36) They allege further that some Citibank or Citibank Int'l employee altered the packing list and the original invoice by typing the word "JEANS" onto those documents. (Compl. ¶ 37) To support this allegation, plaintiffs assert...
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