Foxboro Co. v. Arabian American Oil Co.
United States Court of Appeals for the First Circuit
805 F.2d 34 (1986)
- Written by Elizabeth Yingling, JD
Facts
The Foxboro Company (Foxboro) (plaintiff), a Massachusetts corporation, contracted with Arabian American Oil Company (Aramco) (defendant), a Delaware corporation, to provide a process-control system for a Saudi Arabian refinery. Disputes under the contract were subject to arbitration and governed by Saudi Arabian law. Aramco was required to make payments to Foxboro when Foxboro achieved certain contractual milestones. Aramco was entitled to retain a portion of the payments as security. However, Foxboro had the option of receiving the entirety of the payments in exchange for Foxboro providing a bank guarantee to Aramco in the amount Aramco was entitled to retain. Foxboro chose this option. As a result, Saudi American Bank (Samba) issued a bank guarantee to Aramco. The Samba guarantee was secured by a letter of credit issued by Citibank on Foxboro’s behalf. Aramco terminated the contract a year later and, thereafter, made a demand on the Samba bank guarantee. In turn, Samba made a demand on the Citibank letter of credit. Foxboro petitioned the district court for a temporary restraining order to prevent execution of the letter of credit or the bank guarantee. Foxboro alleged that Aramco’s demand was fraudulent. Foxboro contended that if the injunction were not issued, Foxboro would have to seek the amount of wrongful payment in arbitration, and it would be more expensive for Foxboro to obtain letters of credit in the future. The district court granted the temporary restraining order and subsequently issued a preliminary injunction. The district court held that, without the injunction, Foxboro would be irreparably harmed because (1) Aramco would have an unfair advantage in negotiations between the parties and (2) Foxboro’s business reputation would be damaged. Aramco appealed.
Rule of Law
Issue
Holding and Reasoning (Torruella, J.)
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