| Weiss v Benetton U.S.A. Corp. |
| 2015 NY Slip Op 00360 [124 AD3d 633] |
| January 14, 2015 |
| Appellate Division, Second Department |
[*1]
| Melvyn I. Weiss,Respondent-Appellant, v Benetton U.S.A. Corporation et al.,Appellants-Respondents. |
Ahmuty, Demers, & McManus, Albertson, N.Y. (Glenn A. Kaminska andNicholas M. Cardascia of counsel), for appellants-respondents.
Maidenbaum & Associates, PLLC, Merrick, N.Y. (Jeffrey A. Maidenbaum ofcounsel), for respondent-appellant.
In an action, inter alia, to recover damages for fraud and breach of contract, thedefendants appeal, as limited by their brief, from so much of an order of the SupremeCourt, Nassau County (Mahon, J.), entered August 6, 2013, as denied their cross motionfor summary judgment dismissing the complaint, and the plaintiff cross-appeals, aslimited by his brief, from so much of the same order as denied his motion for summaryjudgment on the complaint.
Ordered that the order is reversed insofar as appealed from, on the law, and thedefendants' cross motion for summary judgment dismissing the complaint is granted; andit is further,
Ordered that the order is affirmed insofar as cross-appealed from; and it isfurther,
Ordered that one bill of costs is awarded to the defendants.
On July 13, 1995, Republic National Bank (hereinafter Republic) issued anirrevocable standby letter of credit (hereinafter LOC), executed by the plaintiff, MelvynI. Weiss, which was in favor of the defendant Benetton U.S.A. Corporation (hereinafterBenetton USA) in the principal sum of $500,000. According to Weiss, his friend DannyMarkowitz needed the LOC to secure goods that Markowitz's nonparty corporations hadpurchased from an entity Weiss knew as "Benetton" for resale in Markowitz's "Benetton"retail stores. On its face, however, the LOC did not require Benetton USA, as a conditionof obtaining payment, to warrant to Republic that Markowitz's corporations owed a debtto it. Rather, the LOC provided only that Republic would pay Benetton USA upon ademand referencing the LOC's reference number and providing Republic with the LOCitself. From about 2005, Markowitz's corporations purchased goods from the defendantBenetton Trading USA, Inc. (hereinafter Benetton Trading), not from Benetton USA(hereinafter together the Benetton defendants). Weiss annually renewed the LOC until2009, and at no time was the beneficiary of the LOC transferred from Benetton USA toBenetton Trading.
In February 2009, Markowitz's corporations owed Benetton Trading nearly$1,000,000 for unpaid receivables. After Markowitz allegedly informed the Benettondefendants that his corporations would be unable to pay their receivables because he hadlost his savings in the Bernard Madoff Ponzi scheme, by letter dated February 12, 2009,Benetton USA, as beneficiary of [*2]the LOC, informedRepublic's successor, HSBC Bank USA, N.A. (hereinafter HSBC), that it was drawingupon the LOC. In that letter, Benetton USA referenced the LOC reference number andattached the LOC itself. HSBC remitted to Benetton USA the principal sum of $500,000on February 20, 2009, and debited those funds from Weiss's account. Benetton USA thenimmediately transferred the funds to Benetton Trading, which applied the funds to reducethe debt owed to it by Markowitz's corporations.
Thereafter, Weiss commenced this action against the Benetton defendants to recoverdamages for fraud, breach of contract, and unjust enrichment. Weiss moved for summaryjudgment on the complaint and the Benetton defendants cross-moved for summaryjudgment dismissing the complaint. The Supreme Court denied both motions, concludingthat there were triable issues of fact as to whether Markowitz's corporations owed a debtto either Benetton USA or Benetton Trading when Benetton USA drew upon theLOC.
"Letters of credit are commercial instruments that provide a seller or lender (thebeneficiary) with a guaranteed means of payment from a creditworthy third party (theissuer) in lieu of relying solely on the financial status of a buyer or borrower (theapplicant). Historically, letters of credit have been used to assure predictability andstability in mercantile transactions by diminishing a seller's risk of nonpayment and abuyer's risk of nondelivery due to insufficient funds" (Nissho Iwai Europe v KoreaFirst Bank, 99 NY2d 115, 119 [2002] [citations omitted]; see Gilday v Suffolk County Natl.Bank, 100 AD3d 690, 692 [2012]). "By issuing a letter of credit, the [bank]undertakes an obligation to pay the beneficiary, or his [or her] transferee if the letter isnegotiable, from the account of its customer" (First Commercial Bank v GothamOriginals, 64 NY2d 287, 294 [1985]). Generally, stand-by letters of credit are "meantto be drawn upon only in the event that its applicant fails to make a direct payment to thebeneficiary . . . For this reason, to collect upon a stand-by [letter of credit],the beneficiary . . . must present to the issuing bank a default letter statingthat the debt had not been satisfied as of a specified date" (Brenntag Intl. Chemicals,Inc. v Bank of India, 175 F3d 245, 251 [2d Cir 1999] [internal quotation marksomitted]; see Nissho Iwai Europe v Korea First Bank, 99 NY2d at 119-120).However, "letters of credit must be strictly construed and performed in compliance withtheir stated terms" (Nissho Iwai Europe v Korea First Bank, 99 NY2d at 121;see Gilday v Suffolk County Natl. Bank, 100 AD3d at 692). The rationale for thisrule is rooted in the purpose of letters of credit: " '[b]y conditioning paymentsolely upon the terms set forth in the letter of credit, the justifications for an issuingbank's refusal to honor the credit are severely restricted, thereby assuring the reliability ofletters of credit as a payment mechanism' " (Nissho Iwai Europe v Korea FirstBank, 99 NY2d at 121, quoting Voest-Alpine Intl. Corp. v Chase ManhattanBank, N.A., 707 F2d 680, 682 [2d Cir 1983]). Accordingly, "to make an issuingbank's payment obligation conditional, the parties must clearly and explicitly set forththat requirement on the face of the letter of credit" (Nissho Iwai Europe v Korea FirstBank, 99 NY2d at 121).
The Benetton defendants demonstrated their prima facie entitlement to judgment as amatter of law dismissing the cause of action to recover damages for fraud, since inBenetton USA's February 12, 2009, letter to HSBC, it accurately and truthfullyrepresented to HSBC that Benetton USA was the beneficiary of the LOC, and satisfiedthe two conditions set forth in the LOC pursuant to which payment would be made to it,to wit, by (1) referencing the LOC number, and (2) attaching the LOC. In any event, evenif Benetton USA omitted a material fact by failing to warrant that Markowitz'scorporations owed it a debt, such omission was intended to induce reliance only byHSBC, not by Weiss, and there is no evidence that Weiss relied on that omission to hisdetriment (see Vermeer Owners v Guterman, 78 NY2d 1114, 1116 [1991]; Nationscredit Fin. Servs. Corp. vTurcios, 55 AD3d 806, 807-808 [2008]; Marine Midland Bank v Renck,208 AD2d 688 [1994]).
The Benetton defendants also established their prima facie entitlement to judgmentas a matter of law dismissing the cause of action to recover damages for breach ofcontract. The LOC did not create a contractual relationship between Weiss and BenettonUSA, either express or implied (see UCC 5-103 [d]; Nissho Iwai Europe vKorea First Bank, 99 NY2d at 120; First Commercial Bank v GothamOriginals, 64 NY2d at 294; One Step Up, Ltd. v Webster Bus. Credit Corp., 87 AD3d1, 13 [2011]).
The Benetton defendants also established their prima facie entitlement to judgmentas a matter of law dismissing the cause of action to recover damages for unjustenrichment, since [*3]express contracts, albeit notbetween Weiss and Benetton USA (see Nissho Iwai Europe v Korea First Bank,99 NY2d at 120; First Commercial Bank v Gotham Originals, 64 NY2d at 294),govern the subject matter at issue (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co.,70 NY2d 382, 388 [1987]; Goldman & Assoc., LLP v Golden, 115 AD3d 911[2014]; One Step Up, Ltd. v Webster Bus. Credit Corp., 87 AD3d at 14).
In opposition to the Benetton defendants' prima facie showing of entitlement tojudgment as a matter of law dismissing the complaint, Weiss failed to raise a triable issueof fact (see Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).Accordingly, the Supreme Court should have granted the Benetton defendants' crossmotion for summary judgment dismissing the complaint.
For similar reasons, the plaintiff's motion for summary judgment on the complaintwas properly denied. Leventhal, J.P., Chambers, Hall and Duffy, JJ., concur.