9911796707
TMI Blog1983 (6) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... ier proceedings in this action, which may be summarized as follows. The plaintiff is a corporation organized under the laws of the state of Delaware, with its principal place of business in Lexington, Massachusetts. The defendant FNBB is a national banking association organized under the laws of the United States, with its principal place of business in Boston, Massachusetts. The defendant Bank Melli is an agent or instrumentality of the government of Iran. In April of 1977, Itek entered into a contract with the Imperial Government of Iran to manufacture certain high-technology optical equipment. The contract price was $22,500,000. By the terms of this contract, the Imperial Government was required to make an advance payment to Itek of $4,500,000. Itek, in turn, was obliged to provide security for this advance in the form of four bank guaranties, each in the amount of $1,125,000, issued by Bank Melli and naming the Imperial Ministry of War as beneficiary. Itek was further required to furnish a bank guaranty in the amount of $2,250,000, issued by Bank Melli in favor of the Imperial Ministry of War as security for the good performance of its contractual obligations. As a condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and requested consultations in accordance with the terms of the contract. On August 20, 1979, representatives of Itek met in Iran with officials of the Ministry of National Defense to discuss the occurrence of force majeure and the status of the contract obligations. At this meeting, Itek's representatives also presented the Iranian participants with copies of unpaid invoices that had accumulated since February 1979, and a summary of the account under the contract. On November 3, 1979, the United States Embassy in Teheran, Iran was forcibly taken over and 52 American citizens were taken hostage. In response to the crisis, President Carter on November 14, 1979 declared a national emergency and, by Executive Order No. 12170, "blocked" all Iranian assets subject to the jurisdiction of the United States. Shortly thereafter, the Treasury Department promulgated regulations to implement the Presidential directive that all assets be blocked. These regulations prohibited the transfer of any property subject to the jurisdiction of the United States in which Iran had any interest whatever, except as authorized by license or regulation. 31 C.F.R. §§ 535.101 et seq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the Judicial Panel for Multidistrict Litigation. The United States government filed Suggestions of Interest supporting the motion as necessary to important national interests. The motion for a stay was granted on April 14, 1980, and the temporary restraining order entered on March 11, 1980 was extended until further order of the Court. On January 19, 1981, agreement was reached between the United States and Iran to release the 52 American hostages. As part of the agreement, the United States consented to transfer all blocked Iranian assets from the Federal Reserve Bank of New York to an escrow account to be established at the Bank of England, and to submit to arbitration by an International Arbitral Tribunal claims of United States or Iranian nationals against the other government. The United States further agreed to terminate litigation in United States courts involving claims subject to arbitration before this tribunal. The agreement was implemented by a complex series of Executive Orders and regulations. As I have noted, Executive Order No. 12170 blocked the transfer of all Iranian assets subject to the jurisdiction of the United States. On February 24, 1981, Executive O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was denied. FNBB then filed a notice of appeal from the judgment, and from the denial of its motion to alter or amend. Bank Melli also appealed from the memorandum, order and judgment. Two further amendments were made by the Department of Treasury to the regulations governing disposition of Iranian assets prior to argument before the Court of Appeals. On July 2, 1982, the Treasury Department amended section 535.504 to prevent the entry of final judgments concerning Iranian interests in standby letters of credit. As a result, claims concerning the validity of standby letters of credit became subject to the general licensing provisions of 31 C.F.R. § 535.504. On December 7, 1982, just two days before argument in the Court of Appeals, the regulations were again amended to prevent the entry of final judgment in cases where "judgments or orders ... may have been previously entered but [have] not become final by July 2, 1982, through the conclusion of appellate proceedings or the expiration of the time of appeal." This case was cited by the Secretary of the Treasury as an example of a case pending on appeal to which the amended regulation should apply. Both of these am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before this Court. Itek has moved for reinstatement of a preliminary injunction preventing FNBB and all persons acting in concert with it from honoring any demand for payment or making any payment on letters of credit S-14555, S-14558, and S-14559. The purpose of a preliminary injunction generally is to protect the rights of the parties and to preserve the status quo between the parties pending a full hearing on the merits of their controversy. In determining whether a preliminary injunction should issue, the Court must consider four factors. These are whether the plaintiff will suffer irreparable injury if the injunction is not granted; whether such injury outweighs any harm which granting the relief would inflict on the defendants; whether the plaintiff has demonstrated a sufficient likelihood of success on the merits; and whether the public interest will be adversely affected by granting the requested relief. Planned Parenthood League v. Bellotti, 641 F.2d 1006, 1009 (1st Cir.1981). I shall consider these factors in order. Irreparability of Harm First, I must determine whether the plaintiff will suffer irreparable injury if the requested relief does not issue. Itek, on the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat conditions in Iran have changed radically since that time. What was contractually "customary" and "necessary" in 1977 does not, in the face of dramatically changed circumstances, exert binding force on the parties and this Court more than six years later. I reiterate my earlier finding, that "the present domestic situation there has rendered access to Iranian courts futile." Itek Corporation v. First National Bank of Boston, supra, 511 F.Supp. at 1349. Therefore, I do not find that Itek should be required to pursue its remedies in the Iranian courts before having resort to this forum. See 3 New York Law Revision Commission, Study of the Uniform Commercial Code, at 1656-57 (1955). Second, as to Bank Melli's claim that Itek should be estopped from pursuing remedies in this Court because of its failure to pursue arbitration before the International Arbitral Tribunal, I find that Itek's election not to avail itself of arbitration has been consistent with the United States' interpretation of the agreement between the United States and Iran, as stated in the several Executive Orders and Treasury Regulations discussed above. The precise quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F.Supp. at 1351. Under these circumstances, I believe that any injury to the defendants from the issuance of a preliminary injunction is outweighed by the potential harm to Itek were relief to be denied. Likelihood of Success on the Merits I next consider whether the plaintiff has demonstrated a sufficient likelihood of success on the merits of its claims to warrant preliminary relief at this time. The Uniform Commercial Code, M.G.L. c. 106, specifically provides that a court may enjoin payment of a letter of credit where either the documents presented to the issuing bank are forged or fraudulent or there is fraud in the underlying transaction. M.G.L. c. 106 § 5-114(2)(b). This provision carves out an important exception to the general rule that the parties' respective rights and liabilities on a letter of credit are independent of the underlying transaction. See, generally, Note, "Fraud in the Transaction: Enjoining Letters of Credit During the Iranian Revolution," 93 Harv.L.Rev. 992, 994-95 (1980). As I have earlier found in this matter, the uncontested facts in the record, if proven at trial, appear to make out a prima facie case of fraud within the meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of those institutions to perform their claimed contractual obligations, I find that "there is at least as much public interest in discouraging fraud as in encouraging the use of letters of credit." Itek Corporation v. First National Bank of Boston, supra, 511 F.Supp. at 1351. Second, I find that the public interest is aided by the court's effective use of its limited power of intervention to maintain regularity in these important commercial transactions. Finally, and most significantly, I find that the public interest would be manifestly disregarded were this Court to ignore the plain intent of the Executive branch in issuing its most recent amendments to the Treasury Regulations on the status of standby letter of credit litigation. The purpose of these amendments is to halt proceedings in the United States courts, in order that diplomatic negotiations as to the proper forum for these claims may proceed unimpeded. In the absence of this injunction, the controversy underlying these discussions, at least with respect to these parties, might become moot. I therefore find that the public interest is not harmed by granting the requested relief. Conclusion Having cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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