Voest-Alpine Trading USA Corp. v. Bank of China

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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