United States District Court, E.D. Arkansas, Jonesboro Division.
Marshall Jr. United States District Judge
First Community Bank properly refuse to honor Arch Specialty
Insurance's $300, 000.00 letter of credit? That's the
core dispute. The many other points are at the margin; they
merit some discussion, though, because the parties have
briefed them so thoroughly.
the real-letter-of-credit point. It makes no material
difference that the Bank issued a letter of credit on its own
form before issuing one on Arch's form, and that the two
differ slightly. No. 50-16 at 2. Nor does it matter which one
Arch's agent thinks has life. No. 50-18 at 15-16
(deposition pagination). The Arch form and the Bank form were
two different contracts; and nothing in the record suggests
that the Arch form-executed by the Bank and containing all
material terms -fails as a contract. To have two partially
overlapping letters of credit is perhaps unusual (here it
looks like an administrative slip-up), but it doesn't
make the Arch form void.
the bankruptcy points. Arch's actions in Crittenden
Hospital Association's bankruptcy don'tcreate summary
judgment issues. Arch didn't violate the automatic stay
by seeking payment on the letter of credit-neither the letter
nor any payment were assets of the Hospital. In re Papio
Keno Club, Inc., 247 B.R. 453, 459 (B.A.P. 8th Cir.
2000), ajfd, 262 F.3d 725 (8th Cir. 2001). This is
not a case, in other words, where payment on the letter would
leave Arch holding money that really belongs to the Hospital.
Ibid. Nor did Arch and the Hospital change the
character of this letter by calling it
"collateral." Nq 39-2 at 2. Arch isn't
judicially estopped or barred by inconsistent positions
either, because its failure to assert a claim in the Hospital
bankruptcy isn't inconsistent with having such a claim.
Unlike the estopped party in Jones v. Bob Evans Farms,
Inc., 811 F.3d 1030, 1032-33 (8th Cir. 2016), Arch
wasn't the debtor. And it doesn't matter in this case
whether Arch told the bankruptcy court about the letter when
it moved to lift the stay and cancel the Hospital's
policy. The existence of an unconditional letter of credit
between Arch and the Bank didn't control the
Arch/Hospital relationship. The letter was enforceable
against the Bank, not the Hospital. Which raises a broader
and decisive point: estoppel doesn't really matter
anyway, because Arch can pursue this case even if it is
estopped from claiming that the Hospital owes it money- the
Bank must pay on an unconditional letter of credit
regardless. Nissho Iwai Europe v. Korea First Bank,
99 N.Y.2d 115, 120 (2002).
fraud. There's no issue on fraud by concealment either.
The Bank doesn't argue that Arch had a duty to disclose.
Both Arkansas and New York law require that duty underneath
an alleged concealment. Farm Bureau Policy Holders and
Members v. Farm Bureau Mutual Insurance Co. of Arkansas,
Inc., 335 Ark. 285, 301-02, 984 S.W.2d 6, 14 (1998);
900 Unlimited, Inc. v. MCI Telecommunications Corp.,
215 A.D.2d 227, 227 (N.Y.App.Div. 1995). It's not fraud
to forego a claim on a debtor in bankruptcy.
leaves presentment-the core dispute, which is dispositive.
The Arch form letter of credit embodies the Bank's
promise to honor Arch's $300, 000.00 sight draft drawn on
the Bank. No. 39-1 at 2. It requires "[t]he original of
this Letter of Credit, and all amendments, if any, [to]
accompany all drawings... hereunder." Ibid. The
letter answers to New York law, which requires strict
compliance with the letter's terms. N.Y. U.C.C. Law
tried twice to present the letter for payment. In December
2014, Arch sent the Bank a sight draft and a copy of the
letter. No. 39-4 & 39-5. Arch said it would present the
original letter in person if the Bank agreed to honor the
draw request. Ibid. The Bank refused to pay. It
explained its refusal in a January 2015 letter, which
asserted three defects in the presentation-fifteen business
days after that effort. No. 49-1 at 34. Then, in April 2015,
Arch's agent presented the letter in person. No. 39-9 at
¶¶5-6. The agent didn't present a sight draft
or any other documents with the original letter. No. 50-18 at
15, 21-22 (deposition pagination).
Bank says neither presentment strictly complied with the
letter's terms: the 2014 attempt lacked the original
letter; the 2015 attempt lacked a sight draft. Arch returns
fire on three fronts. First, Arch says, even if each attempt
failed alone, they succeeded together. The sight draft
arrived in December 2014, and the original letter in April
2015. But Arch cites no authority for a
three-and-a-half-month-long presentment. And its January 2015
letters to the Bank threatened legal action for improper
dishonor, belying the new long-presentment argument. No. 49-1
at 33, 35-36.
second argument gains some ground: strict compliance
doesn't mean slavish compliance. One court recently
blessed a presentment that included a copy-rather than an
original-of an amendment to a letter of credit. Ladenburg
Thalmann & Co. Inc. v. Signature Bank, 128 A.D.3d
36, 38, 44 (N.Y.App.Div. 2015). But that case wasn't a
movement away from strict compliance, as Arch suggests. It
was a court feeling out the doctrine's edges. Looking at
particular facts-a duplicate amendment produced by the bank,
supported by an affidavit of authenticity, covering only an
expiration date, and which had been superseded by later
amendments - the court saw strict compliance. Ibid.
Presentment of that copy, the Ladenburg Thalmann
court said, wouldn't mislead the bank to its detriment or
compel any inquiry into the underlying transaction.
case is different. Arch omitted not a superseded amendment,
but the original letter itself. In its place Arch offered not
a Bank-verified copy, but one - as far as the Bank knew - of
unknown provenance. " One manifestation of the strict
compliance rule is the long-standing practice among issuers
to require original documents unless the letter of credit
stipulates otherwise." Western International Forest
Products, Inc. v. Shinhan Bank, 860 F.Supp. 151, 154
(S.D.N.Y. 1994). That the Bank could see the original letter
after committing to honor the sight draft isn't enough.
Arch's 2014 presentment didn't strictly comply.
Neither did the 2015 attempt. The Bank promised to honor a
sight draft, and Arch's agent didn't present one with
the original letter. No. 50-18 at 15, 21-22 (deposition
pagination). Arch couldn't assume the Bank still held the
failed 2014 sight draft some three-plus months after
the lack of strict compliance, Arch's third argument
carries the day. The controlling New York law required the
Bank to do one of three things within seven business days of
receiving a presentment: honor it; accept a draft (if the
letter provided for delayed honor); or "give notice of
discrepancies in the presentation." N.Y. U.C.C. Law
§ 5-108(b). Not following this law has consequences: the
Bank "is precluded from asserting as a basis for
dishonor any discrepancy if timely notice is not
given...." N.Y. U.C.C. Law § 5-108(c). The Bank
doesn't argue that it timely raised the now-asserted
discrepancies. It didn't. The Bank's first refusal
came too late and raised different objections. No. 49-1 at
34. Instead, the Bank now contends there were none to raise,
"because no draw was actually made pursuant to the plain
terms" of the letter. No. 60 at 3. But it's beyond
dispute that Arch tried to present the letter of credit; the
differences between Arch's attempt and the letter's
terms - such as the missing original in December 2014 and the
missing sight draft in April 2015 - were discrepancies.
Ladenburg Thalmann & Co. Inc., 128 A.D.3d at 41.
Having failed to raise these imperfections then, the Bank has
forfeited them, and can't avoid honoring the letter now
by belatedly asserting Arch's imperfect presentations
"as a basis for dishonor[.]" N.Y. U.C.C. Law §
Bank hasn't responded to Arch's request for 9.0%
prejudgment interest from the December 2014 dishonor. N. 40
at 7. Arch is entitled to be made whole for the delay in
payment. N.Y. U.C.C. Law § 5-111(d); N.Y. C.P.L.R.
§ 5004. Because Arch hasn't suggested that the Bank
should reasonably have raised any discrepancies sooner than
seven business days from receipt, interest will run from the
outside deadline: 31 December 2014. N.Y. U.C.C. Law §
material facts are genuinely disputed. On this record, First
Community Bank must pay Arch Specialty the $300, 000.00 due
on the irrevocable standby letter of credit, plus interest.
Arch's motion for summary judgment, ...