ACR Systems, Inc. v. Woori Bank
OPINION AND ORDER. For the reasons set forth above, Woori's motion to dismiss the amended complaint pursuant to Rule 12(b)(6) is DENIED as to ACR's wrongful dishonor claim and GRANTED as to ACR's claims for civil conspiracy and punitiv e damages. The civil conspiracy claim is dismissed without prejudice, and the punitive damages claim is dismissed with prejudice. SO ORDERED. re: 76 MOTION to Dismiss PLAINTIFFS AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 12(b)(6) filed by Woori Bank. (Signed by Judge John F. Keenan on 2/8/2017) (rjm)
Case 1:09-md-02013-PAC Document 57
Filed 09/30/10 Page 1 of 45
DOC #: _________________
DATE FILED: 02/08/2017
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ACR SYSTEMS, INC.,
In re FANNIE MAE 2008 SECURITIES
08 Civ. 7831 (PAC)
09 MD 2013 (PAC)
14 Civ. 2817 (JFK)
OPINION & & ORDER
HONORABLE PAUL A. CROTTY, United States District Judge:
For Plaintiff ACR Systems, Inc.:
The early years of CONE JR.
LAW OFFICE OF JOHN E. this decade saw a boom in home financing which was fueled, among
John E. Cone Jr.
MARC other COUPEY LAW, PLLC
M. things, by low interest rates and lax credit conditions. New lending instruments, such as
Marc M. Coupey
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
For Defendant Woori Bank:
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
assumptionS. Friedmanwould continue to rise and that refinancing options would always be
Robert that the market
available in the future. Lending discipline was lacking in the system. Mortgage originators did
Shin Y. Hahn
JOHN not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
F. KEENAN, United States District Judge:
originators the their loansis Defendant Woori Bank’s often as securitized packages
Before sold Court into the secondary mortgage market, (“Woori”) motion
known as mortgage-backed securities (“MBSs”). MBS markets amended
to dismiss Plaintiff ACR Systems Inc.’s (“ACR”) grew almost exponentially.
complaint But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
pursuant to Federal Rule of Civil Procedure 12(b)(6).
The amended prices began to fall. In lightclaims for wrongful dishonor of a their
and home complaint asserts of the changing housing market, banks modified
letter of practices and becameconspiracy, and home mortgages without refinancing.
lending credit, civil unwilling to refinance punitive damages. For
the reasons set forth below, Woori’s motion is DENIED as to the
Unless otherwise indicated, all references cited as “(¶ as to “Complaint” are the Amended Complaint,
wrongful dishonor claim and GRANTED _)” or to thethe claimsto for civil
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.
conspiracy and punitive damages.
The following facts are drawn from the amended complaint
and its attached exhibits.
ACR is a Texas corporation
authorized by the U.S. Government to supply military goods to
various foreign governments. (Am. Compl. ¶¶ 2, 6.)
Woori is a
South Korean bank, owned in part by the government of South
Korea, with a branch in Manhattan. (Id. ¶ 3.)
Kook is an agent of the Defense Ministry of South Korea
(“DAPA”). (Id. ¶¶ 4-5.)
In January 2011, ACR entered into five contracts with Woong
Kook to provide certain custom military goods to DAPA. (Id.
The value of the first contract was $85,862.00. (Id.
The value of the other four contracts totaled
$250,270.08. (Id. ¶ 17.)
Payment for the goods covered by the
first contract was to be made by a letter of credit, which is
attached as Exhibit A to the complaint. (Id. ¶ 19.)
of credit bears an issue date of December 28, 2010, and an
expiration date of April 30, 2012. (See id. Ex. A at 1.)
terms, the letter is “subject to the ICC UCP600 [the Uniform
Customs and Practice for Documentary Credits] and URR [Uniform
Rules for Bank-to-Bank Reimbursements Under Documentary Credits]
latest version.” (Id. at 2.)
“Generally, letters of credit are designed to substitute
for, and therefore support, an obligation to pay.” All Serv.
Exportacao, Importacao Comercio, S.A. v. Banco Bamerindus Do
Brazil, S.A., N.Y. Branch, 921 F.2d 32, 34 (2d Cir. 1990).
transaction covered by a letter of credit typically involves
three distinct agreements.
First, there is the underlying sale-
of-goods contract between the buyer and seller. Alaska Textile
Co. v. Chase Manhattan Bank, N.A., 982 F.2d 813, 815 (2d Cir.
Second, there is the buyer’s agreement with a bank to
issue the letter of credit to the seller, as beneficiary. Id.
Third, there is the letter of credit itself, which obligates the
bank to pay the seller when it presents certain documents to the
bank (e.g., documents of title, transport and insurance
documents, and commercial invoices) that conform with the terms
of the credit. Id.
In this case, Woori was the issuing bank and ACR was the
The letter of credit required ACR to
present specified documents to receive payment, including bills
of lading for the shipped goods, a signed commercial invoice,
and an “inspection acceptance certificate” from DAPA, the South
Korean authority receiving the goods. (See Am. Compl. Ex. A. at
A January 17, 2011 amendment to the letter of credit,
attached as Exhibit B to the complaint, specified that Woong
Kook was to forward the acceptance certificate to ACR within
seven days of the date it was issued by DAPA, and that ACR’s
“statement to the bank that this was not done” would be “a cause
to draw against the Letter of Credit.” (Id. Ex. B.)
On February 23, 2012, ACR delivered the military goods
covered by the first contract for shipment to South Korea. (Id.
Despite the fact that the goods allegedly arrived to
DAPA in “good order and condition,” ACR did not receive an
acceptance certificate from DAPA. (Id. ¶¶ 23-24.)
the complaint, ACR timely notified Woori that it did not receive
the acceptance certificate and “timely complied with all
preconditions and requirements of the Letter of Credit by
tendering to Woori all documentation and information required by
the Letter of Credit.” (Id. ¶¶ 24-25.)
Notwithstanding ACR’s alleged compliance with the terms of
the letter of credit, Woori paid only $28,099.11 of the
$85,862.00 due, leaving $57,762.89 outstanding. (Id. ¶ 26.)
Thereafter, ACR repeatedly requested payment of the remaining
amount due, but Woori did not pay. (Id. ¶ 27.)
According to the
complaint, Woori claimed that ACR’s failure to present a DAPA
acceptance certificate prevented it from paying any amount under
the letter of credit, but that Woori nonetheless had made
partial payment after accounting for certain deductions demanded
by Woong Kook and DAPA. (Id. ¶¶ 36-37.)
ACR alleges that Woori wrongfully dishonored the letter of
credit, and that “Woori and Woong Kook colluded to deny the
existence of and supply false information regarding the Letter
of Credit and Woori’s legal obligation to pay ACR the face
amount of the Letter of Credit.” (Id. ¶¶ 37-38.)
that, after this case was filed, Woori and its employees stated
that they did not have a copy of the letter of credit and, when
they were presented within it, claimed that they did not
understand its terms. (Id. ¶ 38(a).)
According to ACR, Woori
and Woong Kook’s collusion was also evidenced by Woong Kook’s
filing of a separate lawsuit against ACR in Texas after this
case was filed. (Id. ¶ 38(g)-(k).)
ACR claims that this “led to
false and malicious publications claiming that ACR had engaged
in fraud with Woong Kook regarding the shipment in question.”
(Id. ¶ 54.)
Based on these allegations, ACR asserts three claims:
(1) wrongful dishonor of the letter of credit, (2) civil
conspiracy; and (3) punitive damages.
ACR seeks to recover
$385,032.97 on the wrongful dishonor claim, including the amount
still owed on the first contract plus $250,270.08 in damages
flowing from the cancellation of the remaining four contracts,
along with inventory and travel expenses. (Id. ¶¶ 43-46.)
also seeks damages of $2,400,000.00 on the civil conspiracy
claim, as well as punitive damages in an amount to be set by the
Court. (Id. ¶¶ 51, 59.)
II. Procedural History
ACR filed its complaint on February 10, 2014, in the
Supreme Court of New York in Westchester County.
the case to this Court on April 18, 2014, on the basis of
On June 23, 2014, Woori moved to
dismiss the complaint for lack of standing and failure to state
a claim upon which relief may be granted.
This Court granted in
part and denied in part Woori’s motion in a March 25, 2015
Opinion & Order. See ACR Sys., Inc. v. Woori Bank, No. 14 CIV.
2817 JFK, 2015 WL 1332337 (S.D.N.Y. Mar. 25, 2015).
17, 2016, the Court granted ACR leave to amend its complaint.
ACR filed the amended complaint on April 1, 2016, asserting for
the first time claims for civil conspiracy and punitive damages.
Woori then filed the instant motion to dismiss under Rule
12(b)(6), which was fully briefed on June 17, 2016.
heard oral argument on the motion on June 28, 2016.
III. Motion to Dismiss Standard
To survive a motion to dismiss under Rule 12(b)(6), the
complaint must plead “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007).
A claim is facially plausible “when the
plaintiff pleads factual content that 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
When considering a motion to dismiss under Rule
12(b)(6), a court must accept the complaint’s factual
allegations as true and draw all reasonable inferences in the
plaintiff’s favor. Segarra v. Fed. Reserve Bank of N.Y., 802
F.3d 409, 411 (2d Cir. 2015).
Although the statute of limitations is ordinarily an
affirmative defense that must be raised in the answer, the
defense may be decided on a Rule 12(b)(6) motion if it appears
on the face of the complaint. Ellul v. Congregation of Christian
Bros., 774 F.3d 791, 798 n.12 (2d Cir. 2014) (citing Staehr v.
Hartford Fin. Servs. Grp., 547 F.3d 406, 425 (2d Cir. 2008)).
“[T]he complaint is deemed to include any written instrument
attached to it as an exhibit or any statements or documents
incorporated in it by reference.” Cortec Indus., Inc. v. Sum
Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991).
In moving to dismiss the amended complaint, Woori argues
(1) that ACR’s wrongful dishonor claim is time-barred from the
face of the complaint; (2) that even if the claim is timely, it
is inadequately alleged; (3) that the complaint fails to state a
claim for civil conspiracy; and (4) that ACR’s standalone claim
for punitive damages must be dismissed because such damages are
As explained below, the Court disagrees with
Woori’s first two arguments and agrees with its latter two
ACR’s Wrongful Dishonor Claim Is Timely As Alleged
As a federal court sitting in diversity in New York, this
Court applies New York’s choice-of-law rules. See Thea v.
Kleinhandler, 807 F.3d 492, 497 (2d Cir. 2015).
Where, as here,
a nonresident plaintiff suffers an injury outside the state, New
York’s borrowing statute, N.Y. C.P.L.R. § 202, requires the
plaintiff’s action to be timely under the limitations periods of
both New York and the jurisdiction where the cause of action
accrued. N.Y. C.P.L.R. § 202; Thea, 807 F.3d at 497.
A cause of
action accrues at the place of injury, which in the case of a
purely economic injury is the place where the plaintiff resides
and therefore sustains the economic impact of the loss. Glob.
Fin. Corp. v. Triarc Corp., 93 N.Y.2d 525, 529 (1999).
ACR resides in Texas, where it is incorporated and maintains its
principal place of business, the place of the alleged injury in
this case is Texas. See id.
Thus, ACR’s wrongful dishonor claim
must be timely under the law of both New York and Texas to
Woori argues that ACR’s claim is barred by the one-year
statute of limitations set forth in Article 5 of the New York
U.C.C. See N.Y. U.C.C. § 5-115.
By its own terms, however,
Article 5’s one-year statute of limitations applies only to
“[a]n action to enforce a right or obligation arising under this
The Court must therefore determine whether
Article 5 supplies the substantive law on which ACR’s claim is
Article 5 itself sets forth New York’s choice-of-law rules
for actions to recover on a letter of credit. See id. § 5-116.
Three provisions are relevant to the Court’s determination of
what law governs Woori’s liability.
First, Section 5-116(a)
directs that an issuer’s liability is governed by the law of the
jurisdiction chosen by an agreement between the parties. See id.
In full, the provision reads:
The liability of an issuer, nominated person,
or adviser 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 in the manner provided in section 5104 or by a provision in the person’s letter
of credit, confirmation, or other undertaking.
The jurisdiction whose law is chosen need not
bear any relation to the transaction.
Id. § 5-116(a).
This section does not apply here because the
letter of credit does not designate a particular jurisdiction’s
Next, Section 5-116(b) sets forth the rules for determining
what jurisdiction’s substantive law controls where the parties
have not chosen a particular jurisdiction’s law in their
Unless subsection (a) of this section applies,
the liability of an issuer, nominated person,
or adviser for action or omission is governed
by the law of the jurisdiction in which the
person is located. The person is considered to
be located at the address indicated in the
person’s undertaking. If more than one address
is indicated, the person is considered to be
located at the address from which the person’s
undertaking was issued. For the purpose of
jurisdiction, choice of law, and recognition
of interbranch letters of credit, but not
enforcement of a judgment, all branches of a
entities and a bank is considered to be
located at the place where its relevant branch
is considered to be located under this
Id. § 5-116(b).
Woori’s Seoul, South Korea branch issued the
letter of credit here, and the letter of credit requires all
documents to be sent to Woori’s Seoul branch. (Am. Compl. Ex. A
at 1, 3.)
Thus, Woori’s liability is determined by South Korea
law under this subsection.
Woori’s New York branch’s status as
drawee and reimbursing bank is of no moment because Section 5116(b) is clear that the law of the issuer’s jurisdiction
But where, as here, the parties designate that the letter
of credit is subject to rules of custom or practice, those rules
govern, even in the event of a conflict with Article 5.
Specifically, Section 5-116(c) states:
subsection, the liability of an issuer,
nominated person, or adviser is governed by
any rules of custom or practice, such as the
uniform customs and practice for documentary
credits, to which the letter of credit,
expressly made subject. If (1) this article
would govern the liability of an issuer,
nominated person, or adviser under subsection
(a) or (b) of this section, (2) the relevant
undertaking incorporates rules of custom or
practice, and (3) there is conflict between
this article and those rules as applied to
that undertaking, those rules govern except to
subsection (c) of section 5-103.
Id. § 5-116(c).
Accordingly, the UCP and URR govern Woori’s
liability and are supplemented, to the extent necessary, by the
substantive law of South Korea.
Because the rights and obligations at issue here do not
arise from Article 5, by its own terms Section 5-115’s one-year
statute of limitations does not apply.
As a result, the
relevant New York statute of limitations is N.Y. C.P.L.R.
§ 213(2), which provides a six-year limitations period for
breach of contract actions. See New Indoafric Exports Private
Co. v. Citibank, N.A., No. 15-CV-9386 (VM), 2016 WL 6820726, at
*3 (S.D.N.Y. Nov. 7, 2016) (applying N.Y. C.P.L.R. § 213(2)’s
six-year statute of limitations to a wrongful dishonor claim
where the letter of credit at issue predated the enactment of
Article 5’s one-year statute of limitations).
the Texas U.C.C. is identical in all relevant respects to the
New York U.C.C. and is therefore inapplicable to ACR’s claim for
the same reasons, Texas’ four-year statute of limitations for
breach of contract actions is the relevant period under Texas
law. See TEX. CIV. PRAC. & REM. CODE ANN. § 16.004 (West); Williams
v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231,
234 (Tex. App. 2008).
Under these limitations periods, ACR’s claim for wrongful
dishonor is timely as alleged.
The claim could not have accrued
before the letter of credit was issued on December 28, 2010.
Thus, based on the complaint, the claim was timely under both
Texas’ four-year limitations period and New York’s six-year
limitations period when brought on February 10, 2014.
The Complaint States a Claim for Wrongful Dishonor
To prevail on a claim for wrongful dishonor of a letter of
credit, a plaintiff must demonstrate:
(1) that there exists a
letter of credit issued by the defendant for the benefit of the
plaintiff; (2) that the plaintiff timely presented conforming
documents to the defendant as required by the letter of credit;
and (3) that the defendant failed to pay the plaintiff on the
letter of credit. See UCP Art. 7(a); see also Heritage Bank v.
Redcom Labs., Inc., 250 F.3d 319, 325 (5th Cir. 2001).
no serious dispute that ACR has adequately alleged the first and
The letter of credit is attached to the
complaint, and ACR claims that Woori paid only $28,099.11 of the
$85,862.00 due, leaving $57,762.89 outstanding. (Am. Compl.
¶¶ 19, 26.)
The second element is also met.
ACR alleges that it
“timely complied with all preconditions and requirements of the
Letter of Credit by tendering to Woori all documentation and
information required by the Letter of Credit.” (Id. ¶ 24.)
While Woori argues that this allegation is conclusory, the rest
of the complaint supplies sufficient context to satisfy ACR’s
The letter of credit indicates that its
expiration date was April 30, 2012. (Id. Ex. A at 1.)
lists the “Documents Required” and “Additional Cond[itions]” for
ACR to receive payment. (Id. Ex. A at 2.)
Thus, taken as a
whole, the amended complaint alleges that ACR provided Woori
with all of the documents listed under “Documents Required” and
complied with all of the “Additional Conditions” by April 30,
Further, ACR alleges that the letter of credit was
amended to allow it to provide written notice of its failure to
receive a DAPA acceptance certificate in lieu of the certificate
itself. (Id. ¶ 20.)
ACR attaches the alleged amendment as
Exhibit B to the amended complaint and asserts that it “timely
delivered such a written notice to Defendant, which Defendant
received (attached as Exhibit C).” (Id.)
acknowledged at oral argument that the document attached as
Exhibit C was appended in error and is not the correct notice.
(See Oral Arg. Tr. 17:8-18:3.)
However, at this stage, the
Court nonetheless assumes the truth of ACR’s allegation that it
timely delivered such notice to Woori.
motion to dismiss is denied as to ACR’s wrongful dishonor claim.
ACR Fails to Adequately Allege a Civil Conspiracy Claim
Both parties’ arguments with respect to ACR’s civil
conspiracy claim rely on New York law. (See Pl.’s Mem. at 10-15;
Def’s Mem. at 10-20.)
New York does not recognize an
independent tort of conspiracy, see Kirch v. Liberty Media
Corp., 449 F.3d 388, 401 (2d Cir. 2006), but does allow a claim
for civil conspiracy to “connect the actions of separate
defendants with an otherwise actionable tort.” Alexander &
Alexander of N.Y., Inc. v. Fritzen, 68 N.Y.2d 968, 969 (1986).
Thus, “a claim for civil conspiracy may stand only if it is
connected to a separate underlying tort.” Treppel v. Biovail
Corp., No. 03 CIV. 3002 (PKL), 2005 WL 2086339, at *5 (S.D.N.Y.
Aug. 30, 2005).
Once that threshold showing has been made, the
plaintiff must establish four additional elements:
agreement between two or more parties; (2) an overt act in
furtherance of the agreement; (3) the parties’ intentional
participation in the furtherance of a plan or purpose; and
(4) resulting damage or injury.” Id.
ACR argues that it has adequately pleaded fraud as the tort
underlying its civil conspiracy claim.
To establish common law
fraud under New York law, a plaintiff must show that “(1) the
defendant made a material false representation, (2) the
defendant intended to defraud the plaintiff thereby, (3) the
plaintiff reasonably relied upon the representation, and (4) the
plaintiff suffered damage as a result of such reliance.” Banque
Arabe et Internationale D’Investissement v. Md. Nat’l Bank, 57
F.3d 146, 153 (2d Cir. 1995).
Under Federal Rule of Civil
Procedure 9(b), a plaintiff asserting a claim sounding in fraud
must plead the circumstances constituting fraud “with
particularity,” FED. R. CIV. P. 9(b).
The complaint must
therefore “(1) specify the statements that the plaintiff
contends were fraudulent, (2) identify the speaker, (3) state
where and when the statements were made, and (4) explain why the
statements were fraudulent.” Lerner v. Fleet Bank, N.A., 459
F.3d 273, 290 (2d Cir. 2006) (citation omitted).
ACR fails to plausibly allege fraud, and its allegations
fall well short of satisfying Rule 9(b)’s heightened pleading
ACR first argues that Woori “fraudulently omitted
from its communications with ACR that it paid all monies due
under the first contracts referenced in the letter of credit to
Woong Kook.” (Pl.’s Mem. at 10.)
But this allegation is not in
the complaint, and even if it were, ACR fails to explain how
this would amount to an actionable omission.
ACR next argues
that Woori “fraudulently claimed that the lack of a DAPA
acceptance certificate prevented it from paying ACR the monies
due” on the letter of credit. (Id.)
But ACR provides no
adequate explanation for how Woori’s position on its legal
obligations under the letter of credit constitutes a false
Nor does ACR allege facts demonstrating an intent to
Further, ACR fails to meet Rule 9(b)’s heightened
pleading requirement by alleging when, where, and by whom the
alleged misrepresentations were made.
Accordingly, ACR’s civil
conspiracy claim is dismissed.
D. Punitive Damages Are Not Available
New York does not recognize a separate cause of action for
punitive damages. Martin v. Dickson, 100 F. App’x 14, 16 (2d
Cir. 2004) (summary order).
Further, insofar as the damages on
ACR’s wrongful dishonor claim are governed by Korean law,
punitive damages are unavailable. See Byung-Suk Chung & Chul-Won
Lee, Korea, in TRANSNATIONAL LITIGATION § 19: 100 (John Fellas ed.,
2016) (“Korean law does not recognize punitive damages or
multiple damages which are not related to the actual damage
suffered by the obligee.”); In Hyeon Kim, An Introduction to
Korean Law Governing Carriage of Goods by Sea, 36 J. MAR. L. &
COM. 447, 461 (2005) (“Punitive damages are not part of Korean
law; only compensatory damages are.”).
for punitive damages is dismissed.
As a result, ACR’s claim
E. Leave to Amend
ACR requests leave to amend the complaint to cure any
deficiencies identified by the Court.
Leave to amend a pleading
should be freely given “when justice so requires,” FED. R. CIV. P.
15(a)(2), but should be denied when an amendment is offered in
bad faith, would be futile, or would cause undue delay or
prejudice. Ruotolo v. City of N.Y., 514 F.3d 184, 191 (2d Cir.
Because punitive damages are not available as a
standalone claim, leave to amend the cause of action for
punitive damages is denied as futile.
This has no bearing,
however, on whether ACR may seek punitive damages as a remedy on
a properly asserted claim for civil conspiracy if one is later
Turning to the civil conspiracy claim itself, ACR fails to
indicate in its opposition papers what it might add to the
complaint to make the claim viable.
While ACR claims to have
recently discovered evidence showing a payment of $85,862.00
from Woori to Woong Kook, (see Decl. of John E. Cone Jr., Esq.
¶ 3), this new allegation does not support a claim for fraud and
would not cure the civil conspiracy claim’s deficiencies.
Accordingly, if ACR wishes to amend the civil conspiracy claim,
it must file an application with the Court attaching its
proposed amendments and explaining how those amendments would
allow the civil conspiracy claim to survive a motion to dismiss.
Any such application must be made no later than 30 days from the
date of this order.
For the reasons set forth above, Woori's motion to dismiss
the amended complaint pursuant to Rule 12(b) (6)
is DENIED as to
ACR's wrongful dishonor claim and GRANTED as to ACR's claims for
civil conspiracy and punitive damages.
The civil conspiracy
claim is dismissed without prejudice, and the punitive damages
claim is dismissed with prejudice.
New York, New York
February 8, 2017
United States District Judge
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