The Milky Whey, Inc. v. HSBC Bank USA, N.A.

Background

The Milky Whey, Inc. sued HSBC Bank USA, N.A. and HSBC Bank Canada over an irrevocable standby letter of credit. HSBC Bank Canada issued the letter of credit on or about June 1, 2018, for the benefit of The Milky Whey, and HSBC Bank USA was the confirming bank. The letter initially covered $800,000. Its First Amendment reduced the amount to $790,000, and later amendments extended the expiration date to March 9, 2022.

The Milky Whey alleged that The Winning Combination, Inc. bought goods but failed to pay more than $790,000. On or about March 9, 2022, The Milky Whey presented documents to HSBC Bank USA to draw on the letter of credit. The banks refused payment because The Milky Whey presented a copy, rather than the original, of the First Amendment. HSBC Bank Canada declined to waive the requirement for an original.

The amended complaint asserted two wrongful-dishonor claims and one breach-of-contract claim. It sought $790,000 in damages. The banks moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a legal claim.

Court’s Analysis

The court treated the standby letter of credit, the International Standby Practices 1998 (ISP98), and the official commentary to ISP98 as part of the materials properly considered on the motion because the claims depended on those documents and rules.

Under the letter’s terms, a written demand had to be accompanied by the original standby letter of credit and its amendments, if any, or by an attestation from the remitting bank stating that the original had been endorsed for the amount claimed. The letter also stated that it was subject to ISP98 and, for matters not covered by ISP98, New York law.

The court explained that letters of credit generally require examination of the presented documents against the letter’s terms. New York law ordinarily applies a strict-compliance rule, while ISP98 uses a standard based on the role of the particular document and standard standby practice. ISP98 Rule 4.15(a), however, provides that a presented document must be an original unless the standby letter states otherwise. The court found no applicable exception or waiver here.

The parties agreed that The Milky Whey did not provide an original of the First Amendment, that the letter required an original of the letter and its amendments or the specified bank attestation, and that the banks refused payment. The court distinguished a New York appellate decision involving a true copy of an expired amendment because that standby letter of credit had not adopted extrinsic practice rules and had wording that arguably created an ambiguity. The court found no comparable ambiguity in this letter.

Disposition

The court held that The Milky Whey’s failure to provide the original First Amendment was fatal to the required element that it timely present conforming documents. Because the wrongful-dishonor and breach-of-contract claims were all based on the same failure to honor the draw, the court granted the defendants’ motion to dismiss the amended complaint. The court directed the Clerk to enter judgment dismissing the amended complaint and close the case.