Archer Daniels Midland Co. v. JP Morgan Chase Bank, N.A.

ADM Rice, Inc. (ADM Rice) was a subsidiary of Archer Daniels Midland Co. (ADM) that purchased and exported rice and wheat. ADM Rice sold large amounts of rice and wheat to Iraq through the Grain Board of Iraq (GBI). ADM Rice agreed to post a performance bond that guaranteed the quality of rice or wheat. GBI accepted an offer from ADM Rice for 120,000 metric tons of rice for a price of roughly $69 million. ADM arranged for a performance bond through the Trade Bank of Iraq (TBI) for $6.9 million, 10 percent of the contract price. ADM also applied for a letter of credit in the lump sum of the same amount from JP Morgan Chase Bank, N.A. (Chase) (defendant). Chase issued the letter of credit with ADM Rice as the account holder and TBI as the beneficiary. The letter of credit incorporated the terms of the performance bond, including the requirement that all claims made must be accompanied by a laboratory report from the international quality inspection company SGS. ADM Rice shipped the rice to Iraq, and the rice was certified by SGS before leaving the United States. The rice was inspected by SGS in Fujairah, U.A.E., and once again when it arrived in Umm Qasr, Iraq. All SGS inspection reports indicated the rice was in good condition. The rice was completely discharged after the SGS inspection in Umm Qasr on February 14, 2011, and the final SGS inspection report was issued the following day. However, on February 10, 2011, Chase received notice from TBI stating that it received a claim from GBI because an SGS laboratory report certified problems with the quality of the rice, and thus TBI sought to draw down the entire amount of the letter of credit. Chase notified ADM and conveyed that it intended to honor TBI’s request because it complied with the letter of credit. ADM Rice contacted Chase and asserted the demand was wrongful because there was no adverse SGS report. ADM Rice contacted various offices of SGS to confirm there was no such report. ADM brought suit seeking a preliminary injunction to enjoin Chase from paying TBI.