Trifinery v. Banque Paribas, 90 Civ. 0673 (JES).

• Decision Date: 02 May 1991
• Docket Number: No. 90 Civ. 0673 (JES).,90 Civ. 0673 (JES).
• Parties: TRIFINERY, A Texas Co-Partnership, Petcor Services, Inc. and Petroserve, Ltd., as co-partners, Plaintiffs, v. BANQUE PARIBAS, Defendant and Third-Party Plaintiff, v. VITOL, S.A., INC., Third-Party Defendant.
• Court: U.S. District Court — Southern District of New York

762 F. Supp. 1119

TRIFINERY, A Texas Co-Partnership, Petcor Services, Inc. and Petroserve, Ltd., as co-partners, Plaintiffs, v. BANQUE PARIBAS, Defendant and Third-Party Plaintiff, v. VITOL, S.A., INC., Third-Party Defendant.

No. 90 Civ. 0673 (JES).

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

May 2, 1991.

Walker, Walker & Kapiloff, P.C. (Arnold Y. Kapiloff, Daniel S. Wohlfarth, of counsel), New York City, for plaintiffs.

Boulanger, Finley & Hicks (J. Portis Hicks, of counsel), New York City, for defendant and third-party plaintiff.

Coudert Brothers (Darrell Prescott, of counsel), New York City, for third-party defendant.

MEMORANDUM OPINION AND ORDER

SPRIZZO, District Judge.

Plaintiffs Trifinery, Petcor Services, Inc., and Petroserve Ltd. (collectively "Trifinery") bring this action against Banque Paribas ("Paribas" or "the Bank") alleging that Paribas wrongfully refused payment on a letter of credit opened by Vitol, S.A., Inc. ("Vitol") in favor of Trifinery. Presently pending before the Court is Paribas' motion for summary judgment.¹ For the reasons set forth below, the motion is denied.

BACKGROUND

The Underlying Transaction

This action arises out of a transaction between Trifinery and Vitol involving the sale and processing of oil, which was structured as follows: (1) Vitol agreed to sell to Trifinery 437,000 barrels of 100% Syrian straight run fuel oil of normal export quality shipped on a vessel named the "Bulk Ravenna;" (2) Trifinery was to process that crude oil into component parts known as vacuum gas oil ("VGO"), vacuum tower bottoms ("VTB") and distillate, and was to sell those components back to Vitol;² and (3) Trifinery was to then repurchase the VTB from Vitol for sale to others as asphalt. See Affidavit of Sanford Brass ("Brass Aff.") at ¶¶ 18-22 & Exs. B-C; Affidavit of Neil E. Kelley ("Kelley Aff.") at ¶¶ 3, 6, 8, 10-14. However, although Trifinery agreed to sell the VTB to Vitol after processing, it was not contemplated that the VTB would ever actually leave Trifinery's tanks, because, as noted above, the VTB would ultimately be sold back to Trifinery. See Brass Aff. at ¶ 81; Kelley Aff. at ¶¶ 10, 14.

The agreement also provided that the parties would secure their respective obligations by opening letters of credit in favor of the other contracting party. Thus, Trifinery caused Bank Indosuez to issue a letter of credit in the amount of $3,175,800.00 to secure its payment obligations to Vitol, whereas in turn Vitol caused Banque Paribas to open the letter of credit at issue in this litigation in the amount of $3,504,447.90 to secure its obligations to Trifinery. See Brass Aff. at ¶¶ 21, 33-34, 37 & Exs. I, L; Kelley Aff. at ¶¶ 7, 9.

Subsequently, when disputes arose regarding the quality of the crude oil aboard the "Bulk Ravenna," see Brass Aff. at ¶¶ 23-26, 41-45, Trifinery and Vitol engaged in extensive negotiations which led to an agreement to reduce the amount of crude oil that Trifinery was obliged to purchase and process and a reduction in the percentages of VGO to VTB expected to be yielded from the crude oil delivered to Trifinery. See Brass Aff. at ¶¶ 25-32 & Exs. G-H. However, when Trifinery concluded that the VTB that it could produce from the crude oil delivered by Vitol could not be sold profitably for asphalt, it notified Vitol that it would not repurchase the VTB from Vitol as agreed, but instead would attempt to market it for Vitol's account. See Brass Aff. at ¶¶ 41-43. Vitol did not consent to Trifinery's proposed sale for Vitol's account, but decided to take no action until the VTB was sold. See id. at ¶¶ 44-46. Toward that end, both parties extended their letters of credit to December 15, 1989. See id. at ¶¶ 47-48.

No agreement was reached. Although Trifinery offered to pay part of the amount due for the disputed VTB and sent a partial payment in December 1989, Vitol continued to insist that Trifinery pay the entire amount due for the VTB. See id. at ¶¶ 53-57. When Trifinery failed to comply with Vitol's demand that that sum be paid by wire transfer, Vitol drew upon and was paid $1,099,834.13 on the Bank Indosuez letter of credit, a sum that did not take into account or recognize Trifinery's rejection of its obligation to repurchase the VTB from Vitol. See Kelley Aff. at ¶¶ 15, 17-26. In response, Trifinery unsuccessfully sought to draw down upon the Banque Paribas letter of credit based upon its contention that Vitol was obligated to pay it for the VTB it agreed to purchase from Trifinery but that Trifinery was not obliged to repurchase that VTB from Vitol.

The Banque Paribas Letter of Credit

The letter of credit issued by Banque Paribas in favor of Trifinery provided as follows:

We hereby open our irrevocable standby letter of credit No. 719430/AR in favor of Trifinery, Houston, Texas by order and for account of Vitol S.A., Inc., Stamford, Ct available at sight for an approximate amount of 3,504,447.90 U.S. Dollars against:

1. Copy(ies) of a signed commercial invoice(s) covering approximately 99,540 barrels of vacuum gasoil at USD 18.585 per barrel and/or approximately 125,610 barrels of vacuum tower bottoms at USD 11.25 per barrel and/or approximately 11,850 barrels of distillate at USD 20.37 per barrel F.O.B. basis Corpus Christi, Texas delivered during September and/or October 1989.

2. Copy of document, purportedly issued or cosigned by the independent inspector for verification of quantity per shore tank down gauge and quality. Shore tank composite quality must meet the following contractual specifications: specifications for VGO omitted

The specifications for the distillate and vacuum tower bottoms should be consistent with the production of straight run Syrian fuel oil.

3. Copies of an original clean on board ocean bill of lading issued or endorsed to the order of Vitol S.A., Inc. and or copies of independent inspectors report indicating shipper as "Trifinery" and cosignee as "Vitol S.A., Inc."

4. A statement purportedly signed by an authorized representative of Trifinery stating that the invoiced product resulted 100 percent from the processing of the straight run Syrian fuel oil received by Trifinery from the vessel "Bulk Ravenna" supplied by Vitol and that the product has been delivered and that although the invoice(s) presented under this letter of credit was (were) due according to contract terms, Vitol S.A., Inc. failed to make payment and payment remains outstanding at the time of drawing.

See Affidavit of Anthony Reardon ("Reardon Aff.") at Ex. 1.³

On the morning of December 15, 1989, the date that the letter of credit was due to expire, Trifinery presented documents to Paribas in support of a request for payment under that letter of credit in the amount of $1,413,891 for the sale of VTB to Vitol. See Reardon Aff. at ¶ 4 & Ex. 2. The Bank determined that these documents did not comply with the terms of the letter of credit for the following reasons: (1) the invoice presented was an original whereas the letter of credit required a copy; (2) the invoice misidentified Trifinery's place of business; (3) the two certificates of weight submitted were not identified as independent inspectors' reports and could not be related to the September/October delivery date; and (4) the third document required by the letter of credit, an independent inspector's report or bill of lading identifying Trifinery as the "shipper" and Vitol as the "cosignee," was missing. See id. at ¶ 5; Affidavit of John Tomaszewski ("Tomaszewski Aff.") at ¶¶ 6-12⁴. Anthony Reardon of Banque Paribas communicated the Bank's decision to John Tomaszewski of Trifinery by telephone before noon. See Reardon Aff. at ¶ 5.

At approximately 1:30 p.m. the same day, Trifinery presented a new set of documents intended to correct the defects of its first presentation. See id. at ¶ 6 & Ex. 3. This request sought payment of $1,267,083.00 for 112,629.60 barrels of VTB. See id. at ¶ 6. However, this presentment was also rejected by Paribas because the statement on the independent inspector's report that the VTB was "delivered into Trifinery's tanks in September and October, 1989" contradicted both the terms of the letter of credit that the oil be delivered to Vitol and also contradicted the statement in the invoice that such delivery had taken place. See id. at ¶ 7(a). Moreover, the independent inspector's report failed to verify the quantity of VTB delivered "per shore tank down gauge," as required by the letter of credit. See id. at ¶ 7(b). Finally, the third document was still missing. See id. at ¶ 7(c). As a consequence, Reardon telephoned Tomaszewski at 3:00 p.m. and advised that these documents still did not comply with the terms of the letter of credit. Tomaszewski stated that the independent inspector would send additional documents to Paribas, but none were ever received. See id. at ¶ 8. Accordingly, Paribas sent Trifinery a telex confirming the rejection of their draw upon the letter of credit. See id. at Ex. 5.

Trifinery's version of these events is quite different. Specifically, Tomaszewski states in his affidavit that when Reardon first raised his concern about the independent inspector's report's failure to refer to the oil delivered in September and October, he explained the nature of the transaction to him, which did not contemplate physical transfer of the VTB, and that Reardon himself suggested the language which Paribas now claims is inconsistent, i.e. that the oil "was delivered into Trifinery's tanks." See Tomaszewski Aff. at ¶¶ 9, 22. Moreover, he states that Reardon expressly agreed that the letter of credit did not require that the VTB, as opposed to the VGO, be measured "per shore tank down gauge." See id. at ¶¶ 11, 22. Tomaszewski also asserted that Reardon did not mention these items in their second telephone conversation. See id. at ¶ 19.⁵

Reardon denies this contention and has submitted an affidavit and contemporaneous notes which support his claims that he did...