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Slade Gorton & Co. v. HSBC Bank Canada

United States District Court, D. Massachusetts

September 23, 2014

SLADE GORTON & CO., Plaintiff


DENISE J. CASPER, District Judge.

I. Introduction

Plaintiff Slade Gorton & Co., Inc. ("Slade Gorton") brings this action against Defendant HSBC Bank Canada ("HSBC") arising out of a letter of credit issued by HSBC to Gray Aqua Group Ltd. ("Gray Aqua"), for the benefit of Slade Gorton. Slade Gorton seeks to recover damages sustained as a result of HSBC's alleged breach of the letter of credit, fraudulent inducement, fraud, and violation of Mass. Gen. L. c. 93A ("Chapter 93A"). Pursuant to Fed.R.Civ.P. 12(b)(2) and (6), HSBC now moves to dismiss for lack of personal jurisdiction and for failure to state a claim upon which relief may be granted. For the reasons set forth below, the motion to dismiss for lack of personal jurisdiction is ALLOWED as it pertains to the claim for breach of the letter of credit and to one of the bases for the Chapter 93A claim. The motion to dismiss for lack of personal jurisdiction is DENIED as to the remaining claims. The motion to dismiss for failure to state a claim is also DENIED.

II. Factual Allegations

Upon a motion to dismiss for want of personal jurisdiction, the plaintiff bears the burden of establishing that jurisdiction exists. Mass. School of Law at Andover, Inc. v. Am. Bar Ass'n. , 142 F.3d 26, 34 (1st Cir. 1998). Here, the prima facie standard governs the jurisdictional determination. U.S. v. Swiss Am. Bank, Ltd. , 274 F.3d 610, 619 (1st Cir. 2001). The prima facie standard requires that the facts alleged by Slade Gorton be taken as true and construed in the light most favorable to its jurisdictional claim. Ticketmaster-New York, Inc. v. Alioto , 26 F.3d 201, 203 (1st Cir. 1994). This Court also considers uncontradicted facts set forth by HSBC. Andover , 142 F.3d at 34. The analysis draws on both the pleadings and the parties' supplementary filings, but does not "credit conclusory allegations or draw farfetched inferences." Ticketmaster , 26 F.3d at 203.

Unless otherwise noted, the following facts are as alleged in the complaint. Slade Gorton, a Massachusetts corporation with a principal place of business in Massachusetts, is a distributor of seafood products. Compl., D. 1 ¶ 1. In June 2011, Slade Gorton entered into a contract with Gray Aqua, a Canadian corporation, by which Gray Aqua agreed to supply fresh salmon to Slade Gorton. Id . ¶ 6. Gray Aqua was subsequently beset with financial difficulties that threatened its salmon farming operations and Slade Gorton's salmon supply. Id . ¶ 7. In March 2013, Slade Gorton agreed to advance up to $2, 500, 000 to Gray Aqua to fund its operations. Id . ¶ 9. To secure repayment of those advances, on April 4, 2013, HSBC issued a letter of credit to Gray Aqua for the benefit of Slade Gorton. Id . ¶ 10. Slade Gorton's first advance to Gray Aqua occurred on March 11, 2013 and its second on March 21, 2013, both before the issuance of the letter of credit. Id . ¶¶ 12, 19-20. The third advance to Gray Aqua occurred on April 4, 2013, the same day the letter of credit issued. Id . ¶ 21. Slade Gorton and Gray Aqua did not amend their supply agreement to reflect the financing arrangement until April 12, 2013, after HSBC issued the letter of credit, making the amendment effective as of March 11, 2013, the date of the first advance. Id . ¶ 12.

The amendment included a repayment schedule and further provided that Slade Gorton could offset the price of purchased fish against Gray Aqua's outstanding debt. Id . ¶¶ 14, 16. Gray Aqua's repayment obligations were secured by the letter of credit. Id . ¶ 17. The letter of credit provided that HSBC would pay Slade Gorton in the event that Gray Aqua failed to repay the advances, provided that Slade Gorton met certain conditions. Id . ¶ 30. Specifically, Slade Gorton's written demand for payment was required to be accompanied by: (1) a signed statement stating the amount requested; (2) certified copies of the remittance confirmations of the advances made by Slade Gorton, each confirmation to include both the letter of credit number and the installment number of the advance; and (3) the original letter of credit. Id. at ¶30. The amount available for draw under the letter of credit automatically decreased weekly in the amount that Gray Aqua was required to repay to Slade Gorton. Id . ¶ 31.

The letter of credit outlined the dates on or before which Slade Gorton was to make each of a total of six advances to Gray Aqua. D. 1-2 at 2. The first, fourth and sixth advances occurred on the dates specified by the letter of credit. D. 1 ¶¶ 20-24; D. 1-2 at 2. However, the second and third advances, both of which occurred on or before the date on which the letter of credit was issued by HSBC, were late. The fifth advance was also late. Id.

Gray Aqua defaulted on its repayment obligations after three payments. Id . ¶¶ 47-51. On July 5, 2013, Slade Gorton demanded that HSBC pay $1, 500, 000 under the letter of credit, the full amount then available for draw. Id . ¶ 52. Slade Gorton included copies of the six remittance confirmations, corresponding to the advances made to Gray Aqua, and a copy of the Letter of Credit. Id . HSBC refused Slade Gorton's demand on July 10, 2013, because some of the remittance confirmations did not reference the installment number of the corresponding advance or the letter of credit number. Id . ¶ 53. In addition, three of the advances were made late, and Slade Gorton submitted a duplicate letter of credit instead of the original. Id.

The crux of Slade Gorton's position is that any discrepancies in its demand were immaterial. The advances made on or before the date of the letter of credit's issuance could not have complied with its requirements because Slade Gorton could not have known what those requirements were. Id . ¶¶ 39-40. Moreover, Slade Gorton avers that an original letter of credit never existed because HSBC issued it only in electronic form. Id . ¶¶ 27-28. Slade Gorton received a printout of the letter of credit only because its bank sent a letter advising that HSBC had issued the letter of credit. Id . ¶ 29.

Two days after rejecting Slade Gorton's demand, HSBC made assurances that it would remit the $1, 500, 000 once Gray Aqua waived the discrepancies in the demand. Id . ¶ 55. Gray Aqua also assured Slade Gorton that it would sign a waiver. Id . ¶¶ 56, 61-63. Relying on these representations, Slade Gorton did not seek to rectify the discrepancies in its demand or to make a further demand against the letter of credit. Id . ¶ 66. Slade Gorton alleges that, despite HSBC's pledge that it would pay, it instead instructed Gray Aqua to refuse to waive the letter of credit's requirements. Id . ¶ 64. On August 20, 2013, Slade Gorton received HSBC's official rejection of its demand, the first rejection of July 10 having been transmitted by email. Id . ¶ 65. Slade Gorton subsequently repeated its demand that HSBC pay $1, 500, 000, but by that time the available draw amount had dwindled to just $150, 000. Id . ¶¶ 69-71. HSBC rejected that demand on September 4, 2013. Id . ¶ 74-75.

The first count of Slade Gorton's complaint is for breach of the letter of credit. According to Slade Gorton, the discrepancies in its draw demands were immaterial and thus an impermissible basis for refusal. Id . ¶ 80. The second count alleges fraud in the inducement because "HSBC fraudulently represented that it would provide guarantees or assurances of payment to Slade Gorton in connection with Slade Gorton's contemplated agreement to make [a]dvances to Gray Aqua." Id . ¶ 84. HSBC also represented that "it would remit payment to Slade Gorton under the [l]etter of [c]redit upon Slade Gorton's written demand." Id . ¶ 85. These representations induced Slade Gorton to enter into the amendment with and make advances to Gray Aqua. Id . ¶ 87. Slade Gorton's third claim, for fraud, cites these same two representations along with HSBC's assurances, following its rejection of Slade Gorton's July 2013 demand, that Gray Aqua would waive the demand's discrepancies and that HSBC would honor the letter of credit. Id . ¶¶ 90-95. This conduct allegedly caused Slade Gorton to delay enforcing its rights while the amount available for draw under the letter of credit decreased. Id . ¶¶ 97-99. Slade Gorton's final claim is for violation of Mass. Gen. L. c. 93A. HSBC's alleged unfair and deceptive practices include: (1) making material misrepresentations to induce Slade Gorton to make the advances to Gray Aqua; (2) issuing a letter of credit with which it was impossible to comply; (3) making material misrepresentations that delayed Slade Gorton's response to HSBC's rejection of its first demand; (4) instructing Gray Aqua not to sign the waiver; and (5) rejecting Slade Gorton's demands under the letter of credit due to immaterial discrepancies. Id . ¶ 106.

Pursuant to Fed.R.Civ.P. 12(b)(2), HSBC moves to dismiss because this Court lacks personal jurisdiction. D. 25 at 2. Invoking Fed.R.Civ.P. 12(b)(6), HSBC further argues that Slade Gorton fails to state a cause of action. Id. at 6. This Court held a hearing on this motion and took the matter under advisement. D. 38.

III. Discussion

A. HSBC's Motion to Dismiss Based on Lack of Personal Jurisdiction

1. Governing Legal Standard

There are two types of personal jurisdiction: general and specific jurisdiction. Slade Gorton does not appear to assert general jurisdiction and this Court sees no basis for doing so. The Court therefore confines its analysis to whether Slade Gorton has met its burden of establishing specific jurisdiction over HSBC.

"In determining whether a non-resident defendant is subject to its jurisdiction, a federal court exercising diversity jurisdiction is the functional equivalent of a state court sitting in the forum state." Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A. , 290 F.3d 42, 51 (1st Cir. 2002) (internal quotation marks omitted). Massachusetts courts construe the long-arm statute as extending specific jurisdiction to the limits permitted by the due process clause. Adelson v. Hananel , 652 F.3d 75, 80 (1st Cir. 2011). "The inquiry into specific jurisdiction lends itself to a tripartite analysis." Philips Exeter Acad. v. Howard Phillips Fund, Inc. , 196 F.3d 284, 288 (1st Cir. 1999). First, the Court must ask whether the plaintiff's claim relates to or arises out of the defendant's contacts with the forum. Id . Second, the Court must determine whether those contacts constitute purposeful availment of the benefits and protections afforded by the forum's laws. Id . Finally, if the Court answers the first two inquiries in the affirmative, then the Court must analyze whether it is reasonable to exercise jurisdiction using five "Gestalt" factors that assess the fundamental fairness of the exercise of jurisdiction. Id .; see Swiss Am. Bank , 274 F.3d at 621.

2. Breach of the Letter of Credit

The claim for breach of the letter of credit must be analyzed distinctly from the fraud-based claims since "[q]uestions of specific jurisdiction are always tied to the particular claims asserted." Exeter , 196 F.3d at 289 ("commend[ing] the lower court's decision to analyze the contract and tort claims discretely"). As to the contract claim here, Slade Gorton asserts personal jurisdiction on the basis of its position as beneficiary of the letter of credit issued by HSBC to Gray Aqua. D. 30 at 5.

The letter of credit at issue in this case involved Gray Aqua, the seller, obtaining the letter of credit naming Slade Gorton, the buyer, as beneficiary. This structure reflects the underlying transaction in which Slade Gorton advanced funds to Gray Aqua to finance Gray Aqua's operations. Gray Aqua was required to repay those funds, either by ...

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