Centrifugal Casting Machine Co. v. American Bank and Trust Co.

Centrifugal Casting Machine Company (CCM) (plaintiff) entered into an agreement with State Machinery Trading Company (SMTC), an Iraqi government agency, under which CCM was to provide SMTC with cast ductile iron-pipe plant equipment for nearly $27.4 million. Under the agreement, CCM was to be paid via an irrevocable letter of credit ordered by SMTC. The letter of credit was issued by Central Bank of Iraq and was confirmed by Banca Nazionale del Lavoro (BNL) (defendant). CCM was authorized to draw 10 percent of the contract amount from the letter of credit as a down payment. Additionally, the agreement obligated CCM to provide a standby letter of credit for the benefit of SMTC to be made available for repayment of the down payment if SMTC showed proof that CCM failed to perform. The standby letter was issued by BNL to CCM’s bank, American Bank of Tulsa (ABT) (defendant). CCM drew the 10 percent down payment from the letter of credit and deposited the amount in its account with ABT as security against any obligations CCM might incur under the standby letter of credit. Subsequently, SMTC attempted to draw on the standby letter of credit but could not provide proof that CCM failed to perform. Consequently, SMTC did not receive any payment under the standby letter of credit before its expiration date. CCM later sued ABT and BNL, with various parties claiming rights to the $2.7 million down payment. The United States intervened, asserting that the Iraqi government had a property interest in the down payment and that the account should be frozen due to a recent executive order freezing foreign assets of the Iraqi government. The district court ruled against the United States, holding that Iraq had no legally cognizable property interest in the down payment. The United States appealed, arguing that Iraq had a property interest in the down payment based on the purported breach-of-contract claim and under principles of rescission and restitution.