Brunswick County v. THE BANK OF TOKYO-MITSUBISHI, No. 99-2380 LIMITED, formerly known as The Bank of…

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BRUNSWICK COUNTY,
Plaintiff-Appellant,
v.
THE BANK OF TOKYO-MITSUBISHI,
No. 99-2380
LIMITED, formerly known as The
Bank of Tokyo, Limited, New York
Agency,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Wilmington.
James C. Fox, District Judge.
(CA-98-211-7-F)
Argued: May 3, 2000
Decided: June 7, 2000
Before MURNAGHAN, LUTTIG, and MICHAEL, Circuit Judges.
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Reversed and remanded by published opinion. Judge Luttig wrote the
opinion, in which Judge Murnaghan and Judge Michael joined.
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COUNSEL
ARGUED: John Joseph Butler, PARKER, POE, ADAMS & BERN-
STEIN, L.L.P., Raleigh, North Carolina, for Appellant. Thomas
Joseph Hall, CHADBOURNE & PARKE, L.L.P., New York, New
York, for Appellee. ON BRIEF: Charles C. Meeker, PARKER, POE,

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ADAMS & BERNSTEIN, L.L.P., Raleigh, North Carolina, for
Appellant. Brian A. Miller, CHADBOURNE & PARKE, L.L.P., New
York, New York; L. Neal Ellis, Jr., Albert Diaz, HUNTON & WIL-
LIAMS, Raleigh, North Carolina, for Appellee.
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OPINION
LUTTIG, Circuit Judge:
Plaintiff-appellant Brunswick County appeals from the district
court's grant of summary judgment to defendant-appellee The Bank
of Tokyo-Mitsubishi, Ltd., on the County's claim that the Bank
breached its contract with the County. For the reasons that follow, we
reverse and remand.
I.
Appellant Brunswick County was the beneficiary of a letter of
credit issued by appellee The Bank of Tokyo-Mitsubishi, Ltd., f/k/a
The Bank of Tokyo, Ltd., New York Agency ("the Bank"). The Bank
issued the $750,000 irrevocable letter of credit to guarantee the per-
formance of its customer, BCH Energy, Limited Partnership ("BCH"
or "the Partnership"), which had entered into a solid-waste Resource
Recovery and Transportation Agreement ("RRA") with the County.
Under the RRA, BCH was obligated to reimburse the County for part
of the costs associated with the construction of a solid-waste collec-
tion facility. BCH defaulted on this obligation and was later forced
into bankruptcy. The County then attempted on two occasions to draw
down on the letter of credit by submitting a drawing certificate signed
by an authorized official of the County. On both occasions, the Bank
refused to honor the draw request, contending that, under the terms
of the letter of credit, the County was required to produce either
BCH's co-signature or a written arbitration award. The County then
brought this action, which the Bank removed to the district court,
invoking the district court's diversity jurisdiction. Finding "no
ambiguity" in the terms of the letter of credit, the district court
granted summary judgment to the Bank.
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II.
New York law governs this federal diversity case. Under New
York law, in order to recover on its claim that the Bank wrongfully
refused to honor its request to draw down on the letter of credit, the
County must prove that it strictly complied with the terms of the letter
of credit. See Marino Industries Corp. v. The Chase Manhattan Bank,
N.A., 686 F.2d 112 (2nd Cir. 1982); see also id. at 115 (stating that
under New York law "[t]he corollary to the rule of strict compliance
is that the requirements in letters of credit must be explicit, [. . .] and
that all ambiguities are construed against the bank") (citations omitted).1
The district court granted summary judgment to the Bank because it
concluded as a matter of law that the County failed to strictly comply
with the terms of the letter of credit. Specifically, the district court
held that the County failed to comply with either"of the two alterna-
tive draw conditions" set forth in "Annex I," a model drawing certifi-
cate attached to the actual letter of credit.
Annex I, which the district court assumed sets forth substantive
limitations on the County's ability to draw down, consists of four
numbered paragraphs, each of which the County apparently had to
"certif[y]" had been satisfied. Three of these four paragraphs are
stated in the alternative, with square brackets enclosing each alterna-
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1 Although, under New York law, we must construe "all ambiguities
[. . .] against the bank," we may do so only as strongly as would be rea-
sonable. See Venizelos, S.A. v. Chase Manhattan Bank, 425 F.2d 461,
465-66 (2nd Cir. 1970) ("if ambiguity exists, the words are taken as
strongly against the issuer as a reasonable reading will justify" (empha-
ses added)). The requirement that we construe all ambiguities against the
bank as strongly as reasonable, however, is not the equivalent of a
requirement that we render judgment as a matter of law against the bank
whenever there is any ambiguity. See, e.g., United States Steel Corp. v.
The Chase Manhattan Bank, N.A., 1984 WL 598, at *2 (S.D.N.Y.) (hold-
ing that, although a provision of the letter of credit was ambiguous, sum-
mary judgment was improper); Automation Source Corp. v. Korea
Exchange Bank, 249 A.D.2d 1, 3 (N.Y. App. Div. 1998) (same). Were
it otherwise, we would be obliged to render judgment against the bank
in every instance in which there was ambiguity, regardless of the implau-
sibility of the beneficiary's construction of the letter of credit's terms.
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tive and group of alternatives.2 These paragraphs refer to the County
as "the Beneficiary" and BCH as "the Partnership," and they provide
in relevant part:
[(3) You are directed to make immediate payment of the
requested drawing to the Beneficiary's account no. ____ at
[insert bank name and address]. [Include when this certifi-
cate is signed by both the Beneficiary and the Partnership]
(4) . . .]
or
[(3) You are directed to make immediate payment of the
requested drawing to the Beneficiary's account no. ____ at
[insert bank name and address]. The date of the requested
drawing is at least 30 days after the decision of the arbitrator
. . . was delivered to the Bank. [Include when this certificate
is only signed by a Beneficiary and after a written finding
of an arbitrator has been delivered to the Bank]
(4) . . .]
J.A. 513 (brackets in original). Based on the language of the brack-
eted instructions at the end of each of the two alternative formulations
of paragraph (3), the district court concluded, with little explanation,
that Annex I conditioned the County's draw down on its production
of either BCH's co-signature or a written arbitration award. In so con-
cluding, the court presumably reasoned as follows. Because Annex I
provides for only two ways in which to "[i]nclude" paragraph (3) in
the drawing certificate -- producing BCH's co-signature and produc-
ing a written arbitration award -- and because the drawing certificate
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2 Each of the two combinations of paragraphs (3) and (4) are separately
bracketed, apparently indicating that the drawing certificate must include
both paragraphs from either the first bracketed combination or the second
bracketed combination. Thus, for example, the drawing certificate cannot
include paragraph (3) from the first bracketed combination and para-
graph (4) from the second bracketed combination.
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must include paragraph (3) in order for the County to draw down,
these are the only two ways in which a draw-down may occur.
We believe that a reasonable jury could well draw just such a con-
clusion. We are convinced, however, that this cannot be so concluded
as a matter of law. First, the letter of credit itself nowhere conditions
draw-downs on the County's production of either BCH's co-signature
or a written arbitration award, even though it purports to "set[ ] forth
in full" the substantive obligations of the parties, and even though it
clearly sets forth other substantive limitations on the County's ability
to draw down, such as the ceiling on the aggregate amount of draw-
downs that the County may make. J.A. 511, 509.
Second, a reasonable jury could conclude that Annex I does not
impose any substantive limitations on the County's ability to draw
down at all. The only sentence in the letter of credit that explicitly ref-
erences Annex I says nothing more than that a draw-down is condi-
tioned on the Bank's receipt of "a written certificate in the form of
Annex I." J.A. 509 (emphasis added). Therefore, while it could be
concluded, as did the district court, that Annex I prescribes substan-
tive preconditions on the County's ability to draw down, it likewise
could reasonably be concluded that Annex I prescribes nothing more
than the form in which the drawing certificate must be presented. In
other words, a jury could reasonably determine that Annex I simply
prescribes that the certificate be dated, that the date be followed by
the Bank's address and a reference line stating the serial number of
the letter of credit, and that this information in turn be followed by
some combination of the aforementioned four paragraphs and by the
signature block.
Third, even if Annex I does impose substantive limitations on the
County's ability to draw down, it need not be read as conditioning a
draw-down on the County's production of either BCH's co-signature
or a written arbitration award. The Bank contends that Annex I must
be so read because the bracketed instructions at the end of each of the
two alternative formulations of paragraph (3) define the exclusive set
of circumstances under which paragraph (3) may be"[i]nclude[d]" in
the drawing certificate, and because paragraph (3) must be included
in the drawing certificate in order for the County to draw down. We
disagree. The bracketed instruction "[Include when this certificate is
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signed by both the Beneficiary and the Partnership]" simply instructs
the County to insert the first alternative formulation of paragraph (3)
into the drawing certificate when the County has produced both its
own and BCH's signatures. It does not say that the County may not
also insert the first alternative formulation of paragraph (3) into the
drawing certificate when the County has produced only its own signa-
ture. That is, the bracketed instruction at the end of the first alterna-
tive formulation of paragraph (3) does not purport to describe every
circumstance in which the first alternative formulation of paragraph
(3) may be used. It might be so understood if it were worded "[In-
clude only when this certificate is signed by both the Beneficiary and
the Partnership]." But it is not so worded, and a reasonable jury need
not so read it.
Fourth, reading Annex I to permit the County to use the first alter-
native formulation of paragraph (3) when the County has produced
only its own signature would not render the second alternative formu-
lation of paragraph (3) superfluous. The Bank contends that it would,
because the County would never proceed through arbitration if it
could simply unilaterally draw down a liquidated amount of damages.
But even if the County could unilaterally draw down a liquidated
amount of damages under the first alternative formulation of para-
graph (3), the County might still elect to arbitrate its dispute with
BCH and thus draw down under the second alternative formulation of
paragraph (3), in order to preserve its working relationship with BCH
and to reduce the risk of future litigation by BCH. 3
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3 Even were we to resort to parol evidence, we would still conclude that
this case may not properly be resolved at the summary judgment stage,
because the parol evidence is also ambiguous. For example, the follow-
ing two sentences from section 7.05 of the RRA could be read in two
very different ways:
The Letter of Credit shall be arranged in such a manner that per-
mits the County to draw upon the Letter of Credit from time to
time for any liquidated amount owed to the County under this
Agreement after [BCH] has committed a breach of this Agree-
ment [. . .]. The Letter of Credit shall provide that the County
may draw upon the Letter of Credit immediately upon the sub-
mission of a written agreement signed by the County and [BCH]
authorizing such payment or thirty (30) days after submission to
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Because the letter of credit, together with Annex I attached thereto,
can reasonably be interpreted in either of the two ways advanced by
the parties, the district court erred in granting summary judgment to
the Bank. And because, construing all ambiguities against the Bank
as strongly as would be reasonable, we cannot say that the County's
interpretation is correct as a matter of law, summary judgment for the
County is also inappropriate. Accordingly, the judgment of the district
court is reversed and the case is remanded for trial.
REVERSED AND REMANDED
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the Issuing Bank of a written finding by an arbitrator [. . .] certi-
fying the amount owed by [BCH] to the County.
J.A. 168 (emphases added). The second sentence could, as the Bank con-
tends, be read as qualifying the first sentence. That is, it could be read
as setting forth the two exclusive circumstances under which the County
may draw down a liquidated amount of damages. But it need not be read
this way. It could also be read as setting forth a requirement that must
be satisfied only in circumstances not covered by the first sentence,
namely, circumstances in which non-liquidated damages are sought. In
other words, the second sentence could, as the County contends, reason-
ably be read as having no effect on the County's ability to unilaterally
draw down a liquidated amount of damages under the first sentence.
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