This is an action by plaintiff, Societe Anonyme Marocain De L'Industrie Du Raffinage (SAMIR) to enjoin defendant Bank of America N.A. (The Bank)from making any further payment on a standby letter of credit that was issued to provide security for a partial payment due on a shipment of crude oil that SAMIR purchased from Intervenor Petraco Oil Company LLP (Petraco).

Petraco moves for summary judgment in lieu of complaint pursuant to CPLR 3213 against the Bank in the amount of $16,144,372 together with interest from September 8, 2015.

The Bank cross-moves to dismiss Petraco's complaint and for an award of attorneys' fees and expenses pursuant to Pennsylvania UCC § 5-111 (e).

SAMIR cross-moves to strike the affirmation of John F. Dolan pursuant to 22 NYCRR [*2]§202.8 (c) and Commercial Division Rule 17.

The facts set forth below are taken from the parties' submissions.

In July 2015, SAMIR, an energy sector company that purchases and sells petroleum products, entered into an agreement with Petraco to purchase 1,000,000 barrels of crude oil. Under section 6 of the agreement, SAMIR was to pay Petraco in two separate payment installments, one for 30% of the quantity of oil sold to SAMIR, and the second for 70% of the quantity of oil sold to SAMIR. The agreement also required that SAMIR obtain a standby letter of credit (SLC) with a bank as security for the 70% quantity of oil (the 30% quantity of oil was unsecured).

To this end, SAMIR's business partner for financing its oil purchases, Carlyle Global Marketing Strategies Commodities Funding 2014-1, Ltd. (Carlyle ^[FN1] ), submitted to the Bank, on behalf of SAMIR, an application for the issuance of the subject standby letter of credit in favor of Petraco, as security for the second payment installment due on the shipment of crude oil that Petraco sold to SAMIR covering 70% of the total quantity of oil (695,304 barrels) (Exhibit A, annexed to the Davis Aff.). On July 2, 2015, the Bank issued its irrevocable standby letter of credit (SLC) in favor of Petraco for the account of SAMIR in the maximum amount of $45 million (Exhibit B, annexed to the Davis Aff.).

The SLC was payable at sight against presentation at the Bank's counters in Scranton, Pennsylvania, and also provided that it would be reduced by the amount of "any payment" made by the Bank in favor of Petraco referring to the SLC (Exhibit B, special condition 7, annexed to the Davis Aff.).

On July 10, 2015, Petraco delivered 993,292 barrels of oil, representing the entire shipment, to SAMIR. On July 17, 2015, Petraco issued two separate invoices to SAMIR, one for the 30% quantity of crude oil, and one for the 70% quantity of oil. The invoice for the 30% quantity, in the amount of $16,144,372.19 for 297,987.60 barrels of oil, stated a payment due date of August 24, 2015. The invoice for the 70% quantity, in the amount of $37,670,201.78 for 695,304.4 barrels of oil, stated a payment due date of September 8, 2015 (the Invoice).

SAMIR failed to pay the unsecured invoice on the 30% quantity in the amount of $16,144,372.19, which became past due as of August 24, 2015.

SAMIR was also unable to pay the secured Invoice on the 70% quantity. On September 8, 2015, the due date for the secured Invoice, SAMIR authorized Carlyle (SAMIR's co-applicant for the SLC) to pay Petraco the full amount of $37,670,201.78 due under the Invoice (Supp. Aff. of A. Al-Jusha'ah, ¶ 4; Exhibit C, annexed to the Davis Aff.). The secured Invoice bears the number 15/1280/2, is dated July 17, 2015, and states that it was for "70% B/L Quantity US BLS for 695,304,40 barrels" totaling $37,670,201.78, and directs payment to Petraco's bank account in an Austrian bank, Raiffeisen Bank International AG, Vienna (Raiffeisen) (Id.).

On that same day, September 8, the Bank wired $37,670,201.78 from Carlyle's account to Petraco's account at Raiffeisen, as specified in the secured Invoice (Exhibit E, annexed to the Davis Aff.). Petraco contends that this payment did not reduce the SLC obligation because the payment, when made, was not a result of a Petraco presentation and did not "make reference" to the SLC. However, there is no dispute that "reference" to the SLC was made, at the latest, on September 29th, 2015 (see below) and presentation by Petraco was not a condition to the pay-[*3]down provision.

In the interim, Petraco admitted that on September 29, 2015, SAMIR ratified that Carlyle (through the payment by the Bank), had, in fact, made the $37,670,201.78 payment on SAMIR's behalf on the secured Invoice.

Notwithstanding the fact that Petraco accepted the payment on the secured Invoice, on September 11, 2015 Petraco made a presentation to the Bank for a draw under the SLC in the amount of $44,978,417.50 (Petraco's first presentation) (Exhibit F, annexed to the Davis Aff.). Petraco's first presentation included a letter statement dated September 10, 2015 and signed by Petraco's chief financial officer stating that a commercial invoice had been presented to SAMIR, and SAMIR had failed to pay. However, at the time of this presentation the $37,670,201.78 payment had already been made covering the secured Invoice. The first presentation also included a Petraco invoice dated September 4, 2015 (the new Invoice), which contained the same invoice number as the prior secured Invoice and referenced the same 70% quantity (695,304.40 barrels) of oil (Exhibit F, annexed to the Davis Aff.). Whereas the prior secured Invoice included a unit price of $54.178 per barrel and a stated invoice amount of $37,670,201.78, the new Invoice omitted any reference to unit price and had a stated invoice amount of $44,978,417.50.

On September 15, 2015, the Bank refused payment of Petraco's first presentation because of discrepancies in the letter of indemnity (Exhibit H, annexed to the Davis Aff.).

On September 22, 2015, Raiffeisen sent the Bank, on Petraco's behalf, a revised letter of indemnity to be used in connection with a second presentation (Exhibit I, annexed to the Davis Aff.). On September 24 and 29, 2015, the Bank again rejected Petraco's presentation (Exhibit J, annexed to the Davis Aff.). Thereafter, Petraco withdrew the second presentation.

On October 13, 2015, Petraco made yet another presentation of documents to the Bank for drawing under the SLC in the amount of $16,144,372.19 (the third presentation) (Exhibit K, annexed to the Davis Aff.). Petraco's third presentation to the Bank included yet another invoice (the third Invoice) issued by Petraco to SAMIR, bearing the same invoice number as the prior Invoices, the same September 8, 2015 due date, and referencing the same 70% quantity (695,304.40 barrels) of oil for which it had been paid in full by Carlyle though the Bank. In contrast to the first Invoice which sought payment of $37,670,201.78 (and which the Bank already paid on September 8), and the second Invoice (which sought payment of $44,978,417.50), the third Invoice sought payment of $16,144,372.19.

On October 20, 2015, the Bank refused to honor Petraco's third presentation for $16,144,372.19. According to the Bank, the SLC only secured payment for 70% of the oil delivery which was to be separately invoiced and which the Bank paid on September 8, 2015. This payment reduced the SLC value pursuant to a pay down provision contained in the SLC, and thus, the third presentation resulted in an attempt to overdraw on the SLC. The Bank also took the position that, because it paid Petraco the full amount of the first Invoice for the 70% quantity of oil, there was no basis to draw down further on the SLC and Petraco's attempt to do so, if successful, would facilitate a material fraud on the Bank, and/or SAMIR.

In support of its motion for summary judgment in lieu of complaint and in opposition to the Bank's motion to dismiss, Petraco asserts that the SLC is an instrument for the payment of money only, it has presented the appropriate documents demonstrating SAMIR's failure to pay the third Invoice, and is entitled to payment of $16,144,372.19. Petraco maintains that under applicable English law, it was permitted to allocate the $37,670,201.78 payment, not to the 70% [*4]invoice, but to pay down the invoice covering the 30% (the unsecured portion) of the oil, and apply the balance to partially pay down the invoice for the 70% portion of the shipment. On this basis, Petraco argues that it is now entitled to draw down on the SLC (up to its limit) for what it contends is the outstanding balance of the invoice for the 70% quantity of oil.

In opposition, the Bank asserts that Petraco is relying on an unsupported interpretation of English law, and its presentation on the SLC after receiving payment for the debt it secured, constitutes fraud under applicable Pennsylvania law.

SAMIR joins in the Bank's opposition, and argues that the sole basis for Petraco to drawn down on the SLC is for payment of the Invoice for 70% of the oil, which Petraco was indisputably paid for, in full, on September 8.

At the outset, the Court rejects the assertion that English law applies to the issue of the Bank's liability to Petraco under the SLC. Although the agreement between Petraco and SAMIR states that it is to be governed by English law, the SLC was issued from the Bank's office in Scranton, Pennsylvania (Exhibit B, annexed to the Grizzanti Aff). The SLC itself states that it is payable upon presentment at the issuing Bank's counters in Scranton, Pennsylvania and is otherwise subject to the Uniform Customs and Practice for Documentary Credits (UCP)^[FN2] (Id.).

Accordingly, the Uniform Commercial Code (UCC), as interpreted by the Pennsylvania Supreme Court, applies. Thus, under applicable Pennsylvania law, where a letter of credit requires a documentary draft or a documentary demand for payment, in the absence of a choice of law provision stating otherwise, the liability of the issuing bank is governed by the law of the place of issuance (UCC § 5-116 [b]; 12A PS § 1-105; see also generally UCC § 1-301; Intraworld Industries, Inc. v Girard Trust Bank, 336 A2d 316, 322-24 [PA 1975]).

Pennsylvania (and similarly New York), law recognize the doctrine of the independent principle, which dictates that the utility of letters of credit "flow from the independence of the issuer-bank's engagement from the underlying contract between beneficiary and customer" (Intraworld Industries, Inc., 336 A2d at 323; accord BasicNet S.p.A. v CFP Servs., Ltd., 127 AD3d 157, 167-68 [1st Dept 2015]). A "letter of credit would lose its commercial vitality if before honoring drafts the issuer could look beyond the terms of the credit to the underlying contract controversy or performance between its customer and the beneficiary" (Id.).

Therefore, the issuing bank of a letter of credit is "not required, or even permitted to go behind the documents to determine if the beneficiary has performed in conformity with the underlying contract" (Intraworld Industries, Inc., 336 A2d at 324). Consequently, the issuing bank is obliged to honor a draw down of the letter of credit only when the documents presented appear on their face to comply with the terms of the letter of credit (12A PS § 5-114).

The threshold issue in considering the Bank's liability to Petraco, thus, is whether the Bank, limited solely to the documents presented to it, appropriately dishonored the third [*5]presentation. For the reasons set forth below, the Bank did.

First, in order to satisfy the specific terms of the SLC, it required an unpaid invoice covering 70% of the total quantity of crude oil purchased by SAMIR; a statement signed by a representative of Petraco as to SAMIR's failure to pay the invoice; and a letter of indemnity.^[FN3] The SLC only covered an unpaid invoice for 70% of the quantity of oil shipped, or 695,304 barrels (Exhibit B, annexed to the Davis Aff.). The third invoice that Petraco presented to the Bank with its third presentation states that it is for 70% quantity of oil shipped, or 695,304 barrels, and references the same invoice number as the first Invoice. However, the Bank had already made payment for this very same oil (the 70% quantity of the total oil shipped) when it paid the first Invoice on September 8, which Petraco received and accepted. SAMIR ratified that this payment was made on its behalf on September 29 at the latest.^[FN4] Therefore, it is clear that the [*6]third presentation was attempted to be made upon a paid, not an unpaid, invoice.

Given that the Bank had already paid the first Invoice for the 695,304 barrels/70% quantity of the oil shipped on September 8, it would have been impossible for the Bank to honor Petraco's third presentation on October 13 seeking payment for the same quantity of oil.

Furthermore, although Petraco claims that the Bank made the payment outside the SLC to Petraco (from Carlyle's account), according to the SLC's own terms, any payment by the Bank reduced the amount available for further draw downs of the SLC in the amount of the payment (Exhibit B, SLC special condition 7, annexed to the Davis Aff.). The SLC plainly provided that it would be "reduced by the amount of any payment made by [the Bank] in favor of [Petraco] referring to the SLC (Exhibit B, special condition 7,^[FN5] annexed to the Davis Aff.). The third presentation seeking $16,144,372 resulted in an attempt to overdraw the SLC, because the Bank's previous payment to Petraco reduced the amount available for drawing under the SLC to approximately $7 million. This Court cannot simply disregard this provision of the SLC.Finally, from the Bank's perspective, evaluating the propriety of Petraco's assertion that it was contractually permitted to allocate the $37,670,201.78 payment, initially, to the first installment of oil shipped to SAMIR (the unsecured, 30% quantity of oil), and the balance to the outstanding amount due on the 70% quantity of oil, would violate the independence doctrine. Requiring the Bank to look beyond the SLC to extrinsic facts, including the payment terms contained in Petraco's agreement with SAMIR which the Bank is not a party to, would undermine the very purpose of a standby letter of credit (Intraworld Industries, Inc., 336 A2d at 323-24).

For these reasons, Petraco has failed to demonstrate that it is entitled to judgment pursuant to CPLR 3213 against the Bank in the amount of the third Invoice, as the Bank appropriately refused to honor Petraco's third presentation based upon the third Invoice seeking payment of an invoice that was already paid, and because it resulted in an attempt to overdraw the SLC.

Furthermore, as identified by the Bank at the time it refused to honor the third presentation, Petraco's conduct raises a serious showing of fraud. As detailed above, the record demonstrates that Petraco attempted to drawn down on the SLC on three presentations based upon separate invoices seeking payment for the very same oil (the 695,304 barrels/70% quantity) which had already been paid in full at the time of each presentation (the payment was made prior to "presentation," which, this Court notes, is not a condition expressed in Special Condition 7).Under Pennsylvania law, "when a document required under the terms and conditions of a letter of credit is an invoice certified not to have been paid, submission of such a certified invoice, when the invoice is in fact known by the beneficiary to have been paid, is fraud [*7]in the transaction' within the meaning of 12A PS § 114 (2) (see Roman Ceramics Corp. v Peoples Nat. Bank, 714 F2d 1207 [3rd Cir 1983]).

Petraco maintains that it acted reasonably and in good faith when it made the third presentation to the Bank, because it was entitled under English law to allocate the Bank's $37,670,201.78 payment first to the 30% (unsecured) quantity of oil shipped, and subsequently to the 70% quantity of oil shipped, insofar as its agreement with SAMIR mandated payment in that order. However, it is clear from the record that Petraco submitted a false "unpaid" invoice to the Bank connection with its third presentation and that such an allocation would require the Bank to look outside the terms of the SLC.

That portion of the Bank's cross-motion which seeks an award of reasonable attorneys' fees and expenses pursuant to Pennsylvania UCC § 5-111 (e), is granted. UCC § 5-111 (e) permits the prevailing party in an action under Article 5 to recover reasonable attorneys' fees and expenses.

Accordingly, it is

ORDERED Intervenor Petraco Oil Company LLP's motion for summary judgment in lieu of complaint pursuant is denied; and it is further

ORDERED that Bank of America N.A.'s motion is granted to the extent it seeks dismissal, and the issue of calculating reasonable attorneys' fees and litigation expenses is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR § 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine this issue whereupon the parties shall settle a judgment and order; and it is further

ORDERED that a copy of this order with notice of entry shall be served on the Special Referee Clerk (room 119) to arrange a date for the reference to a Special Referee; and it is further

ORDERED that Societe Anonyme Marocain De L'Industrie Du Raffinage's cross-motion to strike the affirmation of John F. Dolan pursuant to 22 NYCRR §202.8 (c) and Commercial Division Rule 17 is denied, as moot.