Parties:
Plaintiff/Issuer: Hibernia National Bank;
Defendant: Orleans Regional Hospital, L.L.C.
LC: Standby for US $500,000. Silent as to whether subject to UCP.
Rule:
Venue was proper where the subject property of the lease was located.
History:
To support a lease obligation, applicant obtained a standby letter of credit for $500,000. To draw under the credit, the beneficiary had to certify that the lessor was in default of a "letter agreement dated November 29, 1993."
The beneficiary presented conforming documents, but the applicant objected to payment on the grounds that there was not a November 29, 1993 agreement. The applicant also claimed that the beneficiary had violated the terms of the lease involving dispute resolution and that the lease was null and void. As such, the applicant argued, there could not be a drawing under the letter of credit.
The issuer filed a concursus proceeding (similar to interpleader, i.e. in which a neutral stake holder claimed by two or more persons asks the court to decide to whom payment should be made) in the jurisdiction where the applicant resided. The beneficiary objected to the venue (i.e. the location within the jurisdiction which was to hear the action) on the grounds that the dispute involved money owed on a transaction pertaining to property in another venue.
The applicant argued that the suit concerned the letter of credit, not the lease, and venue was proper where filed (where the applicant was located). The beneficiary countered by arguing that the letter of credit acted as security on the lease which was at the center of the dispute.
Briefing:
1. Venue: The court held that determining who was entitled to the letter of credit proceeds was "inextricably interwoven" with the lease. As such, venue was proper where the immovable property that was the subject of the lease was located.
Views:
Because of the preliminary posture (i.e. decision on where to hear the case), the court is not faced with the critical issue: the issuer should not be permitted to escape its obligations by bringing the beneficiary and applicant to court. It was to avoid such a situation that the L/C was issued. Absent its willingness to bear the burden of proving L/C fraud or an injunction, the issuer must pay a conforming draw. The existence of a dispute about the propriety of payment is not a defense absent L/C fraud. Hopefully whatever court takes the case up in the proper venue will sort out the matter.
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