Air Cargo Servs. LLC v Aeroflot-Cargo

[*1] Air Cargo Servs. LLC v Aeroflot-Cargo 2009 NY Slip Op 52417(U) [25 Misc 3d 1234(A)] Decided on December 2, 2009 Supreme Court, Queens County Markey, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 2, 2009
Supreme Court, Queens County

Air Cargo Services LLC, et al., Petitioners,

against

Aeroflot-Cargo, et al., Respondents.



24822 2009



Appearances:

For the Petitioner: Robert Bondar, Esq., 2753 Coney Island Ave., ste. 207, Brooklyn, NY 11235

For Respondent Aeroflot: McBreen & Kopko, by Leonard D. Kirsch and Regina M. Vakser, Esqs., 500 North Broadway, ste. 129, Jericho, New York, 11753

For Respondent J.P. Morgan Chase: Levi, Lubarsky & Feigenbaum, by Howard B. Levi, Esq.,

1185 Avenue of the Americas, fl. 17, New York, NY 10036



Charles J. Markey, J.

It is ordered and adjudged that the application is determined as follows:

Petitioner Delex alleges that on November 1, 2006, it entered into an agency agreement with Aeroflot, pursuant to which Delex was to represent Aeroflot in the sale of air cargo transportation to Delex's customers. When the relationship between the parties began to deteriorate in 2008, Aeroflot stated that it would terminate the agreement and not continue to accept Delex's customers cargo for transportation unless it was given a letter of credit. Since Delex's customers depended on Aeroflot, Delex, in consideration of having the agency agreement continue, had J.P. Morgan Chase Bank, N.A. (Chase) issue an irrevocable letter of credit in the amount of $100,000 to Aeroflot on December 15, 2008 (letter of credit #CTCS-710152).

In June 2009, Aeroflot terminated the agency agreement and on September 11, 2009 Aeroflot presented Chase with the letter of credit scheduling payment on or about September 16, 2009. On September 15, 2009 a temporary restraining order was issued enjoining Aeroflot from drawing upon the letter of credit and restraining Chase from honoring same. This Court heard oral arguments from the parties on September 24, 2009.

Letters of credit are commercial instruments that provide a beneficiary with a guaranteed means of payment from a creditworthy third-party issuer in lieu of relying solely on the financial status of the applicant (see Nissho Iwai Europe PLC v Korea First Bank, 99 NY2d 115, 119 [2002]). Letters of credit are governed by Article 5 of the Uniform Commercial Code. As defined in the Uniform Commercial Code § 5-102(10), a letter of credit is "a definite undertaking...by an issuer to a beneficiary at the request or for the account of an applicant...to [*2]honor a documentary presentation by payment...."

A letter of credit is revocable only if it specifically so provides (Uniform Commercial Code § 5-106[a]). If a letter of credit, as in this case, is irrevocable, it can be modified or revoked only with the consent of the beneficiary (Uniform Commercial Code § 5-106[b]); J. Zeevi and Sons, Ltd. v Grindleys Bank, 37 NY2d 220 [1975]). It is clear that, in this instance, the beneficiary, herein, Aeroflot has not consented to revocation.

The "[r]ights and obligations of an issuer to a beneficiary...under a letter of credit are independent of the existence, performance, or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary" (Uniform Commercial Code § 5-103[d]). Thus, because letters of credit depend upon certainty of payment, the issuer of the letter of credit must honor the draft irrespective of whether the underlying contract has been properly performed (see Nissho Iwai Europe PLC v Korea First Bank, 99 NY2d 115, 120 [2002]; Mennen v J.P. Morgan & Co., 91 NY2d 13, 20 [1997]; Gillman v Chase Manhattan Bank, N.A., 73 NY2d 1, 12 [1988]).

"Only staunch recognition of this principle by the issuers and the courts will give letters of credit the continuing vitality that arises from the certainty and speed of payment under letters of credit" (Official Comment following Uniform Commercial Code § 5-103 [reprinted in McKinney's Cons Law of NY, Book 62½ at 704]). Therefore, even if there has been a breach of the underlying contract by Aeroflot, Chase, the issuer of the letter of credit, must honor the draft upon presentation. In this case, however, there is not even an allegation by petitioners that it does not owe Aeroflot the amount sought on the letter of credit.

Where an applicant claims that a required document is forged or materially fraudulent or that honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or the applicant, a court may enjoin the issuer from honoring a presentation if it finds on the basis of information submitted that the applicant seeking the injunction is more likely than not to succeed on its claim of forgery or material fraud (Uniform Commercial Code § 5-109[b][4]). "Material fraud by the beneficiary occurs only when the beneficiary has no colorable right to expect honor and where there is no basis in fact to support such a right to honor" (Official Comment following Uniform Commercial Code § 5-109 [reprinted in McKinney's Cons Laws of NY, Book 62½ at 731]). "The standard for injunctive relief is high, and the burden remains on the applicant to show, by evidence and not by mere allegation, that such relief is warranted" (Official Comment following Uniform Commercial Code § 5-109 [reprinted in McKinney's Cons Laws of NY, Book 62½ at 732]).

In this instance, the court finds that the petitioners have failed to demonstrate that they are more likely than not to succeed on the claim that honor of the presentation by Chase would facilitate a material fraud by Aeroflot on Delex (see Kuaerner U.S., Inc. v Merita Bank PLC, 288 AD2d 6 [2001]; Lenox Hill Hospital v American International Group, Inc., [*3]21 Misc 3d 112[A] [2008]). There is neither an allegation of fraud nor facts, in detail, that amount to fraud contained in the petition. Although there are conclusory allegations that Aeroflot was misappropriating Delex's trade secrets and customer lists and making disparaging comments about Delex to alienate Delex from its customer base, there are no specific factual allegations to support such a claim.

Moreover, the fact that Aeroflot terminated the agency agreement only six months after demanding and receiving the letter of credit and sought to present the letter of credit three months after terminating the agency agreement did not amount to a material fraud inasmuch as Section 9.1 of the agreement specifically provided that it could be terminated by either party without prejudice to fulfillment by each party of all obligations accrued prior to the date of termination at any time. In conclusion, the Court finds the petitioners are not entitled to injunctive relief.

Accordingly, the application is denied and the petition is dismissed.

Dated: December 2, 2009

J.S.C.