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Zeeco, Inc. v. JPMorgan Chase Bank

United States District Court, N.D. Oklahoma

March 20, 2018

ZEECO, INC., an Oklahoma corporation, Plaintiff,
JPMORGAN CHASE BANK, National Association, Defendant.



         The Court has for its consideration Defendant's Motion to Dismiss and Opening Brief in Support (Doc. 26). Defendant filed a Response (Doc. 31), Plaintiff filed a Reply (Doc. 38), and both parties submitted supplemental briefs (Doc. 49, 53).

         I. Background

         As explained in this Court's recent Order (Doc. 55), Plaintiff Zeeco, Inc. (“Zeeco”), an Oklahoma corporation, contracted with Fernas Construction India Pvt. Ltd. (“Fernas”) to supply and install a flare system in India. (Doc. 2 at 67 of 104 [First Am. Compl. at ¶ 16]).[1] According to the First Amended Complaint, Zeeco caused JPMorgan Chase Bank, N.A. (“Chase”) to issue “Bank Guarantees”[2] to Fernas in an amount totaling approximately USD $1, 500, 000. (Id. at 67-68 [First Am. Compl. at ¶ 17]). The Bank Guarantees were secured by letters of credit issued under loan agreements between Chase and Zeeco. (Id. at 68 [First Am. Compl. at ¶ 17]).

         Zeeco alleges that it performed under the contract with Fernas, but Fernas made a demand for payment under the Bank Guarantees nonetheless. (Id. [First Am. Compl. at ¶¶ 19-21]). Zeeco contends that Fernas sought fraudulent payment under the Bank Guarantees due to its own financial woes. (Id. [First Am. Compl. at ¶ 22]).

         On October 26, 2016, Zeeco initiated an action in the Tulsa County District Court and filed a motion seeking to enjoin Chase from paying or transferring any funds to Fernas. (Id. at 13, 23). The Tulsa County District Court granted an ex parte temporary restraining order that same day, stating that “Defendant JP Morgan [Chase] is Restrained from transferring or paying Fernas Construction India Pvt Ltd.” (Id. at 27). Zeeco also sought an injunction from a court in Mumbai “out of an abundance of caution.” (Id. at 69 [Am. Compl. at ¶ 29]). A hearing before the Mumbai court was ultimately scheduled for 1:00 p.m. (Mumbai time) on October 27, 2016. (Id. at 71 [Am. Compl. at ¶ 30(f)]). Zeeco alleges that, despite the TRO and the impending court hearing in Mumbai, Chase honored the Bank Guarantees and made payment to Fernas no later than 12:20 p.m. on October 27, 2016 (Mumbai time). (Id. at 72 [First Am. Compl. at ¶ 33]).

         On June 20, 2017, Zeeco filed its First Amended Verified Petition and Claim for Restitution, which includes three counts: (1) wrongful honor of the Bank Guarantees and breach of the loan agreements, (2) misappropriation of funds, and (3) indirect contempt of court. (Id. at 74-77 [First Am. Compl. at ¶¶ 38-57]). On December 21, 2017, this Court entered an Order (Doc. 55) remanding the indirect contempt of court claim to the Tulsa County District Court. Because this third claim is no longer before this Court, Chase's Motion to Dismiss is moot as to that claim.

         II. Legal Standards

         “To survive a motion under Rule 12(b)(6), a plaintiff must plead sufficient factual allegations ‘to state a claim to relief that is plausible on its face.'” Brokers' Choice of America, Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1103 (10th Cir. 2017) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In ruling on a Rule 12(b)(6) motion, the court must liberally construe the pleadings, take all well-pleaded facts as true, and make all reasonable inferences in favor of the non-moving party. Brokers' Choice of Am., 861 F.3d at 1105.

         III. Discussion

         A. Matters Outside of the Pleadings

         Fed. R. Civ. P. 12(d) provides that “[i]f, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56.” “A district court may, however, consider documents attached to or referenced in the complaint if they are ‘central to the plaintiff's claim and the parties do not dispute the documents' authenticity.'” Brokers' Choice of Am., Inc., 861 F.3d at 1103 (quoting Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002)). Zeeco argues that the only integral documents, besides those attached to the Amended Complaint, are the Second Amended and Restated Export Loan Agreement (“Export Loan Agreement”) and the Fourth Amended and Restated Credit Agreement (“Credit Agreement”).[3] (Doc. 31 at 25-26). The Court finds that the Continuing Agreement for Commercial and Standby Letters of Credit Between Zeeco, Inc. and JPMorgan Chase Bank, N.A. (“Continuing Agreement”) is also central to Zeeco's claims, as it supplements the Credit Agreement in regard to letters of credit. Furthermore, the Court finds that the Bank Guarantees themselves are integral, given that Zeeco is asserting that Chase wrongfully honored those instruments. All other documents brought forth by Chase as part of its Motion to Dismiss will not be considered at this time.[4]

         B. Count I

         In regard to the first claim-wrongful honor of the Bank Guarantees and breach of the loan agreements-Chase makes several arguments for dismissal. First, Chase contends that Indian law governs the honor of the Bank Guarantees by Chase's Mumbai Branch and that Zeeco has failed to allege a violation of Indian law. (Doc. 26 at 14-15).

         “[A] federal court sitting in diversity must apply the substantive law of the state in which it sits, including the forum state's choice-of-law rules.” Boyd Rosene & Assocs., Inc. v. Kan. Mun. Gas Agency, 123 F.3d 1351, 1352-53 (10th Cir. 1997). Oklahoma has adopted Article 5 of the Uniform Commercial Code (“U.C.C.”), which includes choice-of-law rules pertaining to letters of credit. Under Okla. Stat., tit. 12A, § 5-116(a), “[t]he liability of an issuer . . . for action or omission is governed by the law of the jurisdiction chosen by an agreement in the form of a record signed or otherwise authenticated by the affected parties . . . or by a provision in the person's letter of credit, confirmation, or other undertaking.”

         Chase points to the Bank Guarantees themselves, issued by Chase Mumbai Branch to Fernas. Two of these Bank Guarantees include a provision stating that “this guarantee shall be governed and construed in accordance with Indian laws and subject to the exclusive jurisdiction of Indian Courts of the place from where tenders have been invited.” (See Doc. 48-1 at 5, 10). Yet the Fourth Amended and Restated Credit Agreement (“Credit Agreement”) between Chase and Zeeco clearly provides that Oklahoma law governs. Section 11.09(a) of the Credit Agreement states that the “[Credit] Agreement shall be construed in accordance with and governed by the law of the State of Oklahoma.” (Doc. 26-1 at 111). Furthermore, Section 2.05(a) of the Credit Agreement includes the following provision:

In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by Borrowers to, or entered into by Borrowers with, the Issuing Bank relating to any Letter of Credit, the terms of this Agreement shall control.

(Doc. 26-1 at 44) (emphasis added).

         Although the Bank Guarantees are significant to the case, the Court finds that Zeeco's cause of action ultimately rests upon the Credit Agreement. See Transamerica Delaval Inc. v. Citibank, N.A., 545 F.Supp. 200, 204 (S.D.N.Y. 1982) (“[The plaintiff's] cause of action rests upon its Credit Agreement with Citibank, not the letter of credit issued by Citibank . . . . While the letter of credit was clearly contemplated by the Credit Agreement, it is an independent contract.”). The parties agree that the Credit Agreement governs the overall relationship between Zeeco and Chase. (See Doc. 26 at 12, n.6, Doc. 31 at 19). In fact, the Credit Agreement sets out the “terms and conditions” purportedly applicable to any letters of credit issued by Chase on Zeeco's behalf. (See Doc. 26-1 at 44-50). The Court further notes ...

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