Opinion
No. X01 CV-04-4000759-S
March 27, 2006
MEMORANDUM OF DECISION RE PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT (#148.60), DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (#149)
Factual Background
Travelers and Gulf are both in the insurance business. Gulf is a wholly-owned subsidiary of Travelers and has offices located at Travelers' principal place of business at One Tower Square in Hartford, Connecticut. In 1998, Travelers entered into an agreement with Cannon Express, Inc. and Cannon Express Corp. to provide them transportation bond and insurance policies; Cannon was required to provide Travelers clean, irrevocable letters of credit of a stated aggregate amount. Accordingly, Cannon applied for and obtained a standby letter of credit (LC) No. S52430A, which LC was issued by Star Bank, NA. in favor of Travelers as the named beneficiary. Under the LC's terms, the issuer promised Travelers it would promptly honor Travelers' sight draft(s) drawn upon the bank. Bass Aff., Ex. A, ¶ 3. That LC is at issue here. "The aforesaid addressee" — or "Beneficiary" — was designated in the original LC as:
Star Bank was later acquired by Firstar Bank, N.A. which later acquired the defendant bank. The defendant has raised no issue it is not liable vis-a-vis these mergers. The court herein refers to the defendant and its predecessors as "Bank."
The Travelers Indemnity Company One Tower Square Hartford, Connecticut 06183 Attn: Cindy Aissis-9GS
The expiration date of the LC was stated as July 29, 1999, though it contained an evergreen clause providing for automatic renewal. By its terms, the LC was automatically extended unless:
90 days prior to any such date we shall notify you in writing by registered mail or courier service at the above listed address that we elect not to consider this Letter of Credit renewed for any such additional period. In that event, you may draw hereunder on or prior to the then relevant expiration date, up to the full amount then available hereunder, against your sight draft(s) on us, bearing the number of this Letter of Credit (Emphasis added).
The designation "9GS" in the line identifying the attention party was a reference to the ninth floor of the Grove Street building, one of nine separate multi-story buildings in the Travelers office complex in Hartford, Connecticut. The following facts are undisputed and relevant to the instant motion:
1. Between the original issuance date and 8/17/00, the LC was amended six (6) times for such reasons as to modify, for example, the amount of the credit to be extended and/or the identity of the person to whom communications should be sent (the "Attention Party") and the location of that person within the Travelers' office complex.
2. The Sixth Amendment, dated August 17, 2000, changed the beneficiary to "Gulf Insurance Company (from Travelers Indemnity Company), changed the LC amount to $2.5 million, and provided," All correspondence will now be to the attention of Donna Johnson-2 PB.
Donna Johnson was a Gulf employee who managed letters of credit held by Gulf; her office was on the second floor of the Plaza Building (thus, "2 PB") within Travelers' office complex.
3. All six amendments were sent to the proper Attention Party at the location indicated in the "attention" line. All were received by Travelers.
4. The original LC expressly provided the document was to be governed by the law of the State of Connecticut and the 1993 Revision of the Uniform Customs and Practice ("UCP") for Documentary Credits of the International Chamber of Commerce (Publication No. 500) and that, in the event of conflict, this state's law would prevail.
5. On April 24, 2002, the Bank sent by UPS to Travelers notice that the LC would not be renewed and would expire on July 29, 2002. That Non-Renewal Notice ("Notice") referenced — for the first time — "LC No. SLCC122395 dated July 29, 1998," and was addressed to:
The Travelers Indemnity Company Financial Analysis Unit 9 Grove Street One Tower Square Hartford, Connecticut 06183.
The LC No. on April 24, 2002, was S52430A
6. On April 25, 2002, a UPS letter package was received in Travelers' mail center. It was marked for interoffice mail delivery to "10 CR, Tom Coffey." Coffey was head of the Credit Risk Management Department ("CRM") of Travelers. CRM's offices were located on the Tenth Floor of the Central Row Building within Travelers' office complex.
7. It is not known where next this UPS package went though both parties accept that at some point the mail processor to whom the package was sorted (in Travelers' mail center) would have opened it and examined the contents in order to properly route the package. Both parties also accept that the package must have involved letters of credit because directed to Tom Coffey of CRM on 10CR. Plaintiff's Memo, at 8. CRM managed Travelers' letters of credit. There is no evidence Coffey ever got the package or what thereafter happened to it.
8. Thereafter, on May 16, 2002, a Seventh Amendment issued. That amendment (sent by regular mail) provided drafts were to be drawn on the defendant at its St. Louis, MO office (as opposed to its Cincinnati, Ohio office), changed the LC "No. to SLCC122395," and listed the name and address of the Beneficiary as just above stated in #5 preceding. In fact, as per the Sixth Amendment of August 17, 2000, the true Beneficiary was Gulf Insurance Company and the "Attention Party" was Donna Johnson-2 PB. See Bass Affidavit, Ex. G.
9. On August 1, 2003, Teresa Bass of Gulf called the Bank to begin the process of drawing down on the LC. She spoke to Julie Wrigley in St. Louis who informed Bass the LC must have expired more than six months earlier because it had been purged from Wrigley's system. Neither Bass nor Wrigley had in their files any notice of cancellation or non-renewal of the LC. No copy of the Notice was found following a subsequent search of relevant files.
10. When the Notice was sent on April 24, 2002, the Beneficiary of the LC was Gulf Insurance Company and all correspondence was to be sent to Travelers' Indemnity Company, One Tower Square, Hartford, Connecticut 06183, Attn: Donna Johnson-2 PB. See Sixth Amendment, August 17, 2000, Bass Affidavit, Ex. G.
11. By draw package dated December 11, 2003, Travelers attempted to draw down on the LC in the amount of $2.5 million. It presented the Travelers Sight Draft, the original LC and amendments, and a cover letter from Michael Malone as Director of CRM at Travelers. See Morgan Aff., Ex. K.
12. Julie Wrigley, on behalf of the Bank, responded on December 15, 2003, refusing payment on the sole ground "The Letter of Credit is expired." Morgan Affidavit, Ex. L.
On apparently the same date (October 17, 2005), both parties filed a motion for summary judgment. Both have submitted memoranda of law with extensive attachments and both have waived oral argument, consenting to the adjudication of the motions on the papers. The plaintiff's motion is first considered only because it was the first to be coded.
Applicable Law
Summary judgment shall be rendered if the pleadings, affidavits and any other proof submitted show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. P.B. § 17-49. The moving party has the burden of showing the absence of any genuine issue of material fact and therefore his/her entitlement to judgment as a matter of law. D.H.R. Construction Co. v. Donnelly, 180 Conn. 430, 434 (1980). The non-moving party must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact. Appleton v. Board of Directors, 254 Conn. 205, 209 (2000). It must be demonstrated by counter-affidavits and concrete evidence. Pion v. Southern New England Telephone, 44 Conn.App. 657, 663 (1997). "A material fact . . . [is] a fact which will make a difference in the result of the case." H.O.R.S.E. of Connecticut, Inc. v. Washington, 258 Conn. 553, 560 (2001). In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party. Barry v. Quality Steel Products, Inc., 263 Conn. 424, 450 (2003). The test is whether a party would be entitled to a directed verdict on the same facts. (Internal quotation marks omitted.) Cummings Lockwood v. Gray, 26 Conn.App. 293, 296-97 (1991). In ruling on this motion, the court's function is not to decide issues of material fact but rather to determine whether any such issues exist. Nolan v. Borkowski, 206 Conn. 495-500 (1998). A conclusory assertion [in an affidavit] does not constitute evidence sufficient to establish the existence of a disputed material fact for purposes of summary judgment. See Hoskins v. Titan Value Equities Group, Inc., 252 Conn. 789, 793-94 (2000). Letters of Credit suits are appropriate for determination by summary judgment. See e.g., Data Gen. Corp. v. Citizens National Bank, 502 F.Sup. 776, 779 (D.Conn. 1980); N.Y. Life Ins. Co. v. Htfd Nat'l. Bank Trust Co., 173 Conn. 492 (1977).
Plaintiffs' Motion for Summary Judgment
The plaintiffs claim there is no genuine issue of material fact regarding the requirements of the LC and, given the strict compliance rule, the Non-Renewal Notice was ineffective and was never received by the Beneficiary's (Gulf's) Letter of Credit Department. The Bank has objected on the grounds: a) Gulf as Beneficiary never presented a draw request seeking payment for itself and thus there was no dishonor of a proper draw request; b) the Non-Renewal Notice of April 24, 2002, was sent to the correct address and the LC had therefore expired one and one half years before any draw request was made; and c) Notice was received or, alternatively, there are issues of fact surrounding the issue of actual receipt (Opp. Memo, at 2).
Article 5 of Title 42a, this state's Uniform Commercial Code, addresses Letters of Credit. Sec. 42a-5-108, which defines the rights and obligations of an issuer, provides that, except in cases of fraud or forgery (not here claimed), an issuer shall honor a presentation that, as determined by the standard practice of financial institutions regularly issuing letters of credit, "appears on its face strictly to comply with the terms and conditions of the letter of credit." Section 42a-5-108(a). It further provides that, unless otherwise agreed with the applicant, an issuer shall dishonor a presentation that does not appear to so comply. Id. Under sub-section (c), an issuer is precluded from asserting as a basis for dishonor any discrepancy if timely notice is not given and is precluded from asserting any discrepancy not stated in the notice of dishonor if timely notice is given. As comment 1 to this provision states, the statute adopts strict compliance (as opposed to substantial compliance) as the applicable standard. "Standard practice" is the vehicle for measuring strict compliance and the determination whether there is such compliance is a matter for the court. See § 42a-5-108(e). Comment 1 goes on to state, "Granting the court authority to make these decisions will also encourage the salutary practice of courts granting summary judgment in circumstances where there are no significant disputes." Our Supreme Court has adopted the strict compliance rule in letter of credit cases. See Armac Industries, Ltd. v. Citytrust, 203 Conn. 394 (1987). There, the Court cited approvingly to an earlier English case wherein it was said that, in letters of credit, "[t]here is no room for documents which are almost the same, or which will do just as well." Id., at 401. Years later, our Supreme Court, in upholding the summary judgment rendered below for the Beneficiary, noted that a letter of credit bound the issuer in the first instance to pay the Beneficiary whose right it was to look immediately to the issuer for payment of drafts presented. It concluded one of the "expected advantages and essential purposes" of an LC was "a minimum of litigation and judicial interference . . ." New York Life Ins. Co. v. Htfd. Nat'l Bank Trust Co., 173 Conn. 492, 566 (1977). The strict compliance rule is as applicable to issuing banks as to beneficiaries. See e.g., Comment 1 to C.G.S.A. § 42a-5-108 ("The standard of strict compliance governs the issuer's obligation to the beneficiary and to the applicant."); see also 3 Com Corp. v. Banco Do Brasil, S.A., 171 F.3d 739, 744 (2d Cir. 1999).
Though the Sixth Amendment to the Letter of Credit (dated August 17, 2000) changed the Beneficiary to Gulf Insurance Company, the Notice of Non-Renewal (dated April 24, 2002) was sent to the Travelers' Indemnity Company and nowhere therein referenced Gulf. Nor was the Notice addressed to the attention of any party though the Sixth Amendment provided, "All correspondence will now be to the attention of Donna Johnson-2 PB." The Notice to Travelers was directed to 9 Grove Street — an entirely separate building from the Plaza Building (PB) earmarked by the Sixth Amendment. Finally, the Notice referenced "Standby Letter of Credit No. SLCC 122395 dated July 29, 1998," when, on the date of the Notice, the LC number was S52430A (The number was not changed until three [3] weeks later when, on May 16, 2002, the Seventh Amendment was issued.) Until receipt of the Seventh Amendment, neither Travelers nor Gulf knew of a change in the LC number. Bass Aff., ¶ 18. These deviations from the LC terms are significant because they made more unlikely receipt of the Notice by Donna Johnson, a Gulf employee who managed letters of credit for Gulf's Transportation Division. That she was, in 2002, located in the South Building within Travelers' complex (Bass Aff., ¶ 8) — and not in the Plaza Building as indicated in the Sixth Amendment — ought not inure to the defendant's benefit in the face of such non-compliance particularly since, had the package gone to Johnson where she was then located, there would have been actual receipt by the Beneficiary (Gulf) and Gulf would have been in the position to present the draw before the LC expired. Thus, the defense argument that the "Attn:" line was not part of the "address" is rejected. "Address" is the "place where mail or other communications will reach [a] person." Black's Law Dictionary, Fifth Edition, p. 36 (1979).
The Notice was specifically directed to Travelers' Financial Analysis Unit; no such unit existed either at Travelers or Gulf in 2002 when the Notice issued. See Morgan Aff. ¶ 11.
Karen Jackson, the manager of the defendant's Letter of Credit Department in St. Louis, testified at deposition the purpose of an "attention party' was to insure a notice reached the right person or department. Plaintiffs' Memo, Morgan Aff., Ex. M, p. 155.
Nor is the argument the plaintiffs ought not here prevail because, when Travelers presented the sight draft, Gulf was the Beneficiary and Travelers did not expressly state it was presenting the draw "on behalf of Gulf. When the Bank rejected Travelers' draw in December 2003, it alleged only one ground for its rejection — that the LC had expired. Under § 42a-5-108(c), the Bank is precluded from asserting any discrepancy not stated in the Notice if as the Bank here claims, its Notice of Non-Renewal was timely. Additionally, nothing in the express language of the LC prevented a party other than Gulf from presenting the draw nor does the defendant provide any authority for the proposition only a beneficiary can present a draw. C.G.S. § 42a-5-102(a)(13) defines a "presenter" as "a person making a presentation as or on behalf of a beneficiary or nominated person." Nothing in Article 5 of the UCC (Title 42a of our statutes) prescribes that, when someone other than the beneficiary presents a draw, an established protocol was to be followed.
Of interest is that, three weeks after the Non-Renewal Notice, the defendant issued a Seventh Amendment which identified "Travelers Indemnity Company" as the Beneficiary of the LC (Bass Affidavit., Ex. H) and nowhere therein did it state that the Sixth amendment had changed the Beneficiary to Gulf.
The plaintiffs have stated (repeatedly) that, by agreements dated August 1, 2002, Travelers assumed administrative responsibility for Gulf letters of credit — to include the making of draws and they have referred the court to Exs. F and G of the Morgan affidavit. See footnotes 6 and 10. The court has examined the excerpts provided from the Quota Share Reinsurance Agreement (Ex. F); while reference is made on page C-2 to "Motor Transport Underwriting," there is no reference to letters of credit and no express authority therein to present draws on Gulf letters of credit. Nor does Ex. G, excerpts from the Administrative Services Agreement between the plaintiffs, expressly reference letters of credit. Neither Mr. Morgan nor the memorandum authors articulate how the exhibits accomplish that for which they are cited nor do they direct the court's attention to any specific provisions within the excerpts provided.
The court concludes the "standard practice" (of § 42a-5-108[e]) to be used in determining whether there has been strict compliance with the terms of the LC is the Bank's own practice in sending to Travelers the first six amendments. Each of those amendments was addressed to the proper beneficiary and to the attention of the correct "attention party" located on a specific floor in a specific building within Travelers' office complex; each of those amendments was received by the insurer and then Beneficiary. Bass Aff., ¶ 29. Speculating with regard to what "must have" happened or "would have" happened under usual circumstances once the mail center sorter directed the April 24, 2002, package to Tom Coffey at 10-CR does not constitute the evidentiary foundation required to defeat plaintiffs' motion. It is no more than conjecture despite the taking of many depositions over a prolonged period of discovery. There is no "evidence" to support the unwarranted offering that the Notice must have been received by Bass but she was less than diligent and somehow lost it. That suggestion ignores that the defendant failed strictly to comply with the terms of the LC and ignores too that, had the Notice been received, there would have been little reason not to make a draw if Gulf (or Travelers) were unable to reach an accommodation with the defendant regarding the non-renewal.
The Seventh Amendment, which contained several internal discrepancies and was not sent to the attention of Donna Johnson-2B, was sent to Travelers but was nevertheless received by Gulf in May of 2002. Bass Aff., ¶ 21.
For all of the above reasons, the defendant's Notice was invalid and of no legal effect. The Bank's dishonor of the sight draft was improper. Under 42a-5-111(a), plaintiffs are entitled to judgment in the full amount of $2.5 million and, under 42a-5-111(d), they are entitled to interest of ten percent on that amount from the date of dishonor (December 15, 2003) to the date of this judgment.
The defendant's argument that permitting full recovery is to permit a windfall ignores that the letter of credit arrangement is completely independent of the underlying contract. It ignores as well that the Bank is not "even permitted to go behind the [LOC] documents before honoring the demands for payment." New York Life Ins. Co. v. Hartford National Bank Trust Co., 173 Conn., at 501 (1977). To permit an inquiry into actual damages as the defendant impliedly urges is not only contrary to statute and violative of the independence principle applicable to letters of credit but would seriously undermine the commercial vitality of the letter of credit as a practical and economic financing instrument and would frustrate the certitude required in letter of credit transactions.
Under § 42a-5-111(e), the court "may" award reasonable attorney fees to the prevailing party and the plaintiffs have requested a hearing re the same. That hearing should be arranged with this court's Court Officer for a date and time convenient to all parties.
Defendant's Motion for Summary Judgment
The Bank has moved for summary judgment on two (2) grounds: a) the LC had expired as of the date the sight draft was presented; and b) Travelers is without standing to bring the action because Gulf, not Travelers, was the Beneficiary under the LC. Plaintiffs have objected and each party has filed a memorandum and extensive supporting documentation. Both have waived argument and consented to adjudication on the papers. At the outset, this motion presents some procedural irregularities. The motion states it is brought "pursuant to Practice Book § 11-1, et seq."; the court assumes the defendant intended to refer to P.B. § 17-44 et seq. The motion should contain the grounds upon which it is predicated since judgment enters on a "motion" and not on the supporting memorandum (The memorandum does state the grounds on Page 2.). Also troubling is that, though it is unclear whether the moving party in a motion for summary judgment is required to file affidavits, where, as here, the moving party chooses to file an affidavit, P.B. § 17-46 requires it "shall be made on personal knowledge, shall set forth such facts as would be admissible in (sic) evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." The movant's affidavit is non-conforming in all respects. It is a Table of Contents of the exhibits which follow the memorandum and should have been so labeled. An affiant must aver or affirmatively show he has personal knowledge of the matters stated in the affidavit. If an affidavit fails to state that it is made on the affiant's personal knowledge or to contain admissible evidence, it will be disregarded. Additionally, the affidavit of personal counsel makes no substantive contribution to the motion's resolution; the court, however, chooses to ignore all of the peculiarities of the motion and the affidavit to address the merits of the arguments advanced.
P.B. § 17-45 requires the motion be supported "by such documents as may be appropriate including but not limited to affidavit . . ." If a moving party has offered written documents in support of the motion but includes no affidavit, is that acceptable?
See e.g., Evans Products Co. v. Clinton Building Supply Inc., 174 Conn. 512, 514-16 (1978).
Associates Financial Services of America, Inc. v. Sorenson, 46 Conn.App. 721, 731-33 (1997), appeal dismissed, 245 Conn. 168 (1998).
As the court has already determined, the strict compliance rule applicable to letters of credit required Notice of Non-Renewal be sent to the attention party at the location specified. Defendant argues the "Attn." line was not in fact part of the address but ignores that the first paragraph of the original LC reads in part, "We hereby establish this . . . Letter of Credit in favor of the aforesaid addressee ("Beneficiary") . . ." (Emphasis added.) The "aforesaid addressee" was immediately above therein listed as:
The Travelers Indemnity Company One Tower Square Hartford, Connecticut 06183 Attn: Cindy Aissis-9GS
The "Attention Party" changed over time.
The Bank apparently urges the court to conclude there is an ambiguity whether the "Attn." line is part of the "above listed address" to which the Non-Renewal Notice was required to be sent. Original LC, ¶ 1, p. 2. It offers no reason for the inclusion of that information with regard to communications sent the "addressee." The court rejects the notion the "Attn." line is mere surplusage because it was not only included in the "addressee" section of the original LC but was included in amendments thereafter. That a May 16, 2002, amendment sent to the same address as the April 24, 2002, Notice of Non-Renewal was in fact received (It was included with documents Malone presented as part of Travelers' draw in December of 2003.) is not determinative of the only issue before this court — namely, whether the Notice as sent was effective. It is relevant to this court's determination that the first six amendments were directed to the designated parties at their specified locations and that all six (6) amendments were received. Thus the court has necessarily concluded it had been the Bank's standard practice to employ the information provided in the "Attn." line when directing correspondence regarding a letter of credit and it is therefore entirely pertinent that it deviated from that custom when directing the subject Notice differently than was called for in the text of the LC. In fact, every LC document issued by the Bank was specifically addressed to the proper beneficiary and directed to an individual on a particular floor in a designated building within Travelers' office complex — until the subject Notice. The Bank's failure to comply with the LC's Sixth Amendment by directing the Notice to the attention of "Donna Johnson-2 PB" had the effect Travelers' Director of Mail Operations described in his affidavit — it subjected the package to additional risk of loss within Travelers' massive office complex. Bradshaw Aff., Plaintiffs' Memo, ¶¶ 29-31. As above stated, there is no admissible evidence to establish other than that, despite Travelers' highly sophisticated and usually effective mail operation, this Notice, once earmarked for Tom Coffey at 10-CR, vanished; to suggest otherwise is to engage in surmise. While it is so that the Notice reached Travelers' mail center, there is not any evidence it reached Gulf who was, in April of 2002, the Beneficiary and both parties agree Gulf is an incorporated entity separate and distinct from Travelers. There is, however, evidence that Travelers, in December of 2003, when the sight draft was presented, administered the LC. See e.g., Bruder Dep., pp. 24-25. (As of August 1, 2002, the date the Administrative Services Agreement was executed, Travelers managed Gulf letters of credit and had the authority to draw on a Gulf letter of credit, a right which had previously been Gulf's.) The Bank's argument the LC had expired when the draft was presented is without merit; its failure to strictly comply with the LC terms in not directing the Notice to the party and location specifically designated renders the LC legally ineffective particularly where, as here, there is no evidence of receipt by Gulf.
See Texpor Traders, Inc. v. Trust Co. Of New York, 720 F.Sup. 1100, 1115 (S.D.N.Y. 1989), wherein the bank properly refused a request for payment under a letter of credit because, inter alia, it failed to include the room number as part of the buyer's address.
The Bank has not offered an explanation for directing the April 2002, Notice to "9 Grove Street" or to the Financial Analysis Unit — both incorrect.
Approximately 5,000 employees of Travelers work in the nine (9) multi-story buildings in the office complex. The main mail operation (at One Tower Square to which the Notice was directed) receives and sends out approximately 150,000 pieces of mail daily and between 2-3,000 pieces of overnight mail daily. The mail center operates six (6) full days a week and employs thirty-two (32) persons full-time. It is a sophisticated, computerized system.
The Bank's second argument has already been addressed. Putting aside that the relevant statutes provide for a "presenter" other than the Beneficiary and that Gulf had ceded authority to draw on the LC to Travelers (which the Bank has not disputed), the only ground the Bank proffered for dishonoring the draw was the claimed expiration of the LC. C.G.S. § 42a-5-108(c) precludes the Bank from now asserting a discrepancy not earlier claimed in its dishonor. Travelers has, in its individual capacity, a legal right, title or interest in the subject matter of this controversy and that interest has been specifically and injuriously affected by the defendant's conduct. See Avalon Bay Communities, Inc. v. Orange, 256 Conn. 557, 568 (2001). Standing involves no more than a colorable claim of injury. Gay Lesbian Law Students Ass'n. v. Board of Trustees, 236 Conn. 453, 466 (1966). There is standing by Travelers,' and the Bank may not here avoid the consequences of its earlier failure to assert, in its dishonor, that Travelers was not the proper party to present the draw by dressing the same argument as a standing issue which should bar suit by Travelers.
There is no genuine issue of material fact with regard to either the effectiveness of the Notice (and therefore the claimed expiration) or Travelers' standing. Both are here decided as a matter of law. The defendant's motion for summary judgment is denied.
Judgment enters this date for the plaintiff.