IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 01-20363
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Voest-Alpine Trading USA Corporation,
Plaintiff-Appellee,
versus
Bank of China; et al
Defendants
Bank of China
Defendant-Appellant.
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Appeal from the United States District Court
For the Southern District of Texas
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April 23, 2002
Before POLITZ, STEWART, and CLEMENT, Circuit Judges.
CLEMENT, Circuit Judge:
The Bank of China appeals an adverse judgment in its dispute
with Voest-Alpine Trading USA Corporation regarding the validity of
a letter of credit. After conducting a bench trial, the district
court concluded that the bank improperly refused payment on the
letter and awarded Voest-Alpine damages and attorney’s fees. We
affirm the district court’s judgment.
I. FACTS AND PROCEEDINGS
In June 1995, Jiangyin Foreign Trade Corporation (“JFTC”), a
Chinese company, agreed to purchase 1,000 metric tons of styrene
monomer from Voest-Alpine Trading USA Corporation (“Voest-Alpine”),
an American company. At Voest-Alpine’s insistence, JFTC obtained
a letter of credit from the Bank of China for the purchase price of
$1.2 million. The letter of credit provided for payment to Voest-
Alpine after it delivered the monomer and presented several
designated documents to the Bank of China in accordance with the
Uniform Customs and Practice for Documentary Credits of the
International Chamber of Commerce, Publication No. 500 ("UCP 500").
By the time Voest-Alpine was ready to ship its product, the
market price of styrene monomer had dropped significantly from the
original contract price. JFTC asked for a price concession, but
Voest-Alpine refused. After shipping the monomer to JFTC, Voest-
Alpine presented the documents specified in the letter of credit to
Texas Commerce Bank (“TCB”), which would forward the documents to
the Bank of China. TCB noted several discrepancies between what
Voest-Alpine presented and what the letter of credit required.
Because it did not believe any of the discrepancies would warrant
refusal to pay, Voest-Alpine instructed TCB to present the
documents to the Bank of China “on approval,” meaning that JFTC
would be asked to waive the problems.
The Bank of China received the documents on August 9, 1995.
On August 11 the bank notified TCB that the documents contained
seven discrepancies and that it would contact JFTC about
acceptance. On August 15, 1995, TCB, acting on behalf of Voest-
Alpine, responded that the alleged discrepancies were not adequate
grounds for dishonoring the letter of credit and demanded payment.
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On August 19, the Bank of China reiterated its position that the
documents were insufficient and stated, “Now the discrepant
documents may have us refuse to take up the documents according to
article 14(B) of UCP 500.” JFTC refused to waive the
discrepancies, and the Bank of China returned the documents to TCB
on September 18, 1995.
In October 1995, Voest-Alpine filed the instant action for
payment on the letter of credit. The Bank of China initially filed
a motion for judgment on the pleadings seeking dismissal for lack
of jurisdiction and improper venue, which the district court
denied. We affirmed the district court’s jurisdictional decision
and held that the venue order was not yet appealable, and the case
proceeded to trial. See Voest-Alpine Trading USA Corp. v. Bank of
China, 142 F.3d 887 (5th Cir. 1998) (“Voest-Alpine I”). After
conducting a bench trial, the district court ruled in favor of
Voest-Alpine, finding that the Bank of China’s August 11, 1995
telex failed to provide notice of refusal and that the
discrepancies noted in that telex were not sufficient to allow
rejection of the letter of credit.
II. DISCUSSION
A. Venue
As an initial matter, the Bank of China argues that the
district court erroneously determined venue to be proper in the
Southern District of Texas. We disagree. A substantial number of
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the events giving rise to the instant dispute occurred in Texas.
First, although the letter of credit was initiated in China, it was
negotiated in both China and Houston and was sent to Voest-Alpine
for acceptance at its headquarters in Houston. Second, Voest-
Alpine presented the allegedly discrepant documents to TCB in
Houston. Finally, payment was to be made to TCB in Houston.
Accordingly, the district court correctly held that venue in the
Southern District of Texas was proper. See 28 U.S.C. § 1391.
B. Notice of Refusal
The Bank of China’s primary contention on appeal is that the
district court erroneously concluded that the bank failed to
provide proper notice of refusal to Voest-Alpine. In order to
reject payment on a letter of credit, an issuing bank must give
notice of refusal to the beneficiary “no later than the close of
the seventh banking day following the day of receipt of the
[presentation] documents.” UCP 500 art. 14(d). If the Bank of
China did not provide timely notice, it must honor the letter of
credit despite any questions as to Voest-Alpine’s compliance. See
Heritage Bank v. Redcom Lab., Inc., 250 F.3d 319, 327 (5th Cir.
2001)(stating that an issuing bank waives its right to reject a
letter of credit if it does not give notice of refusal within the
time allotted by Article 14(d) of the UCP 500).
The parties first dispute the applicable standard of review
for this issue. In a bench trial, findings of fact are reviewed
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for clear error and legal issues are reviewed de novo. See Kona
Technology Corp. v. Southern Pacific Transportation, 225 F.3d 595,
601 (5th Cir. 2000). Voest-Alpine submits that adequacy of refusal
is a factual determination subject to clear error review, because
the UCP 500 is a set of trade usages and not law. The Bank of
China concedes that the UCP 500 is not law, but it argues that de
novo review is appropriate because the UCP 500 has acquired the
function and status of law with respect to letters of credit which
incorporate its terms. This circuit has long held that “[u]sage of
trade is a question of fact.” Pennzoil Co. v. F.E.R.C., 789 F.2d
1128, 1143 (5th Cir. 1986). Accordingly, the district court’s
finding that the Bank of China’s letter did not comply with the
usages of trade set forth in the UCP 500 is a factual conclusion
subject to review for clear error.
The Bank of China received Voest-Alpine’s documents on August
9, 1995. Since August 12 and 13 were Chinese banking holidays, the
deadline for giving notice of dishonor was August 18, 1995. The
Bank of China’s only communication before the deadline was its
telex of August 11, 1995. Accordingly, the issue is whether that
telex provided notice of refusal.
The bank’s August 11 telex stated:
UPON CHECKING A/M DOCUMENTS, WE NOTE THE FOLLOWING
DISCREPANCY:
1. LATE PRESENTATION.
2. BENEFICIARY’S NAME IS DIFFER (sic) FROM L/C.
3. B/L SHOULD BE PRESENTED IN THREE ORIINALS (sic) I/O
DUPLICATE, TRIPLICATE.
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4. INV. P/L. AND CERT. OF ORIGIN NOT SHOWING
‘ORIGINAL.’
5. THE DATE OF SURVER (sic) REPORT LATER THAN B/L
DATE.
6. WRONG L/C NO. IN FAX COPY.
7. WRONG DESTINATION IN CERT. OF ORIGIN AND
BENEFICIARY’S CERT.
WE ARE CONTACTING THE APPLICANT FOR ACCEPTANCE OF THE
RELATIVE DISCREPANCY. HOLDING DOCUMENTS AT YOUR RISK AND
DISPOSAL.
The district court found that the telex failed to provide
notice of refusal because (1) the bank did not explicitly state
that it was rejecting the documents; (2) the bank’s statement that
it would contact JFTC about accepting the documents despite the
discrepancies “holds open the possibility of acceptance upon
waiver” and “indicates that the Bank of China has not refused the
documents”; and (3) the Bank of China did not even mention refusal
until its August 19 telex in which it wrote: “Now the discrepant
documents may have us refuse to take up the documents according to
article 14(B) of UCP 500.” In light of these circumstances, the
district court concluded that the August 11 telex was merely a
status report, that the bank would not reject the documents until
after it consulted JFTC, and that the bank did not raise the
possibility of refusing payment on the letter of credit until
August 19. Accordingly, the district court held that the Bank of
China forfeited its right to refuse the documents and was obligated
to pay Voest-Alpine.
We find ample evidence supporting the district court’s
decision. The court’s determination that the August 11 telex did
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not reject the letter of credit is based primarily on the Bank of
China’s offer to obtain waiver from JFTC. The offer to solicit
waiver, the district court reasoned, suggests that the documents
had not in fact been refused but might be accepted after
consultation with JFTC. In reaching this conclusion, the district
court relied heavily on the testimony of Professor James Byrne
(“Byrne”), Voest-Alpine’s expert witness on international standard
banking practice and the UCP 500. Byrne testified that the bank’s
telex would have given adequate notice had it not contained the
waiver clause. The waiver clause, he explained, deviated from the
norm and introduced an ambiguity that converted what might
otherwise have been a notice of refusal into nothing more than a
status report. Faced with this evidence, the district court
correctly decided that the Bank of China noted discrepancies in the
documents, and, instead of rejecting the letter of credit outright,
contacted JFTC for waiver.
Byrne further explained that the Bank of China’s actions,
viewed in light of standard banking practices, were ambiguous. The
UCP 500 contemplates a three-step procedure for dishonoring letters
of credit. First, the issuing bank reviews the documents presented
for discrepancies. Second, if the bank finds problems, it contacts
the purchaser for waiver. Finally, after conferring with the
purchaser, the bank may issue its notice of refusal. This sequence
ensures the issuing bank’s independence in making its decision
while also giving the purchaser an opportunity to waive
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discrepancies, thus promoting efficiency in a field “where as many
as half of the demands for payment under letters of credit are
discrepant, yet, in the vast majority of cases, the account party
waives the discrepancies and authorizes payment.” Alaska Textile
Co., Inc. v. Chase Manhattan Bank, N.A., 982 F.2d 813, 824 (2d Cir.
1992). In light of the generally accepted procedure outlined by
Byrne, we agree with the district court that the Bank of China’s
notice of refusal was ambiguous and inadequate.
The Bank of China also contends that the district court
improperly accepted Byrne’s expert opinion because TCB employees
Sherry Mama (“Mama”) and Deborah Desilets (“Desilets”) both
testified that they understood the bank’s August 11 telex to be a
notice of refusal. However, in contrast to Byrne’s reasoned
explanation of why the waiver clause deviates from standard banking
practice, Mama and Desilets, who were both fact witnesses, offer
nothing more than their subjective beliefs. Moreover, the
determinative question is not whether the Bank of China provided
adequate notice of refusal to TCB, but whether it gave notice to
Voest-Alpine; and the bank presented no evidence of Voest-Alpine’s
interpretation of the telex.
Viewed in the context of standard international banking
practices, the Bank of China’s notice of refusal was clearly
deficient. The bank failed to use the standard language for
refusal, failed to comply with generally accepted trade usages, and
created ambiguity by offering to contact JFTC about waiver, thus
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leaving open the possibility that the allegedly discrepant
documents might have been accepted at a future date. Accordingly,
the district court properly found that the August 11 telex was not
an adequate notice of refusal. Since we agree with the district
court that the bank failed to provide timely notice, we need not
reach the question of whether the alleged discrepancies warranted
refusal.
C. Damages and Attorney’s Fees
Finally, the Bank of China argues that the district court
erred in its award of damages and attorney’s fees. “A district
court's damages award is a finding of fact, which this court
reviews for excessiveness using the clear error standard.” Lebron
v. U.S., 279 F.3d 321, 325 (5th Cir. 2002). “The factual findings
supporting an award of attorney's fees are reviewed for clear
error; the conclusions of law underlying the award are reviewed de
novo.” Volk v. Gonzalez, 262 F.3d 528, 533 (5th Cir. 2001).
Both parties admit that East Girard Sav. Ass'n v. Citizens
Nat. Bank and Trust Co., 593 F.2d 598, 603 (5th Cir. 1979), allows
a plaintiff in a wrongful dishonor case to recover the face value
of a letter of credit. The Bank of China contends that the East
Girard rule should be rejected in the instant case. First, it
argues that Voest-Alpine’s damages should be reduced by the amount
it received on resale of the styrene monomer. However, even if the
bank had authority for this proposition, it cannot overcome the
trial testimony that Voest-Alpine has not recovered any money by
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reselling the monomer. Second, the Bank of China argues that its
liability to Voest-Alpine should be reduced by the amount it may
receive through a judgment against JFTC in a Chinese court.
However, the district court has already entered an order providing
for such a reduction. Accordingly, we affirm the district court’s
damages award.
The district court also awarded Voest-Alpine $266,453.46 in
attorney’s fees, with an additional $25,000.00 for fees incurred on
appeal. Attorney’s fees may be awarded in letter of credit cases
only when the “underlying contract provides for their recovery or
there is a statute permitting attorney’s fees to be awarded.” Id.
at 604. Since there is no contractual provision for fees in the
instant case, the question is whether a statutory basis for
recovery exists.
Voest-Alpine contends that fees are appropriate under § 38.001
of the Texas Civil Practice and Remedies Code, which generally
permits recovery of attorney’s fees. The Bank of China argues that
§ 38.001 is inapplicable to letter of credit lawsuits and, even if
it did apply, Voest-Alpine waived its right to relief under the
statute. Both prongs of the bank’s argument fail. First, the bank
cites East Girard’s 1979 holding for the proposition that “no
statutory provision awards attorney’s fees in letter of credit
cases.” Id. at 604. However, the bank ignores Temple-Eastex, Inc.
v. Addison Bank, 672 S.W.2d 793, 798 (Tex. 1984), which held that
attorney’s fees in letter of credit cases are permitted under §
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38.001's predecessor, article 2226 of the Texas Statutes.
Accordingly, contrary to the Bank of China’s position, a statutory
basis for attorney’s fees does exist.
Second, the Bank of China argues that Voest-Alpine waived its
right to attorney’s fees under § 38.001 by failing to specifically
cite that statute in either its complaint or the pre-trial order.
The bank points to our decision in Ralston Oil and Gas Co. v.
Gensco, Inc., 706 F.2d 685, 696 (5th Cir. 1983), which held that
the plaintiff waived its claim to attorney’s fees under article
2226 by failing to plead entitlement to fees under that article “at
least with some specificity.” However, in Enserch Corp. v. Shand
Morahan & Co., Inc., 952 F.2d 1485, 1500-01 (5th Cir. 1992), we
held that despite Ralston’s suggestion that “a party must plead
entitlement to [§ 38.001] fees at least with some particularity,”
all the statute really requires is that the defendant be put on
notice that the plaintiff is seeking attorney’s fees. In the
instant case, Voest-Alpine pled for recovery of “attorney’s fees
payable under all applicable statutes. . . .” The bank also points
to our decision in Elvis Presley Enterprises, Inc. v. Capece, 141
F.3d 188, 206 (5th Cir. 1998), for the proposition that a claim or
issue omitted from the pre-trial order is waived, even if it
appeared in the complaint. However, Voest-Alpine alleged in the
pre-trial order that the Bank of China “is liable for the face
amount of the Letter of Credit plus attorney’s fees, interest, and
all costs.” Accordingly, since the Bank of China was on notice of
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Voest-Alpine’s intent to seek fees, Voest-Alpine did not waive its
entitlement, and we uphold the district court’s award.
III. CONCLUSION
The Bank of China failed to provide Voest-Alpine with adequate
notice that it was refusing payment on the letter of credit.
Without a valid excuse for nonpayment, the bank is liable for the
full amount of the letter of credit and for Voest-Alpine’s legal
fees. Accordingly, we affirm the judgment of the district court.
AFFIRMED.
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