Sperry International Trade, Inc. v. Government of Israel

689 F.2d 301 (1982)

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Sperry International Trade, Inc. v. Government of Israel

United States Court of Appeals for the Second Circuit
689 F.2d 301 (1982)

Facts

In 1978, Sperry International Trade, Inc. (Sperry) (plaintiff) and the government of Israel (Israel) (defendant) entered a contract for a communications system for the Israel Air Force. Paragraph 45 provided the parties would submit all disputes to arbitration under the rules of the American Arbitration Association (AAA). Paragraph 59 allowed Sperry to contact Citibank to open a clean irrevocable letter of credit in Israel’s favor. Paragraph 59 also gave Israel the right to draw on this letter of credit under certain circumstances. In August 1981, Sperry initiated arbitration, claiming Israel had breached the contract and demanding damages. Israel denied the allegations and asserted counterclaims. In September 1981, Sperry filed suit in district court to compel arbitration and to enjoin Israel from the line of credit. The Second Circuit subsequently reversed a district court order enjoining Israel from drawing on the letter of credit in a decision referred to as Sperry I. In January 1981, Israel demanded payment of the letter of credit, and Sperry sought an attachment of the proceeds of the letter of credit before the arbitral tribunal. In February 1981, the arbitral tribunal made their award, ordering that the bank hold the proceeds in a joint escrow account. Sperry later filed motion to confirm the award, and the district court confirmed the arbitration award. Israel appealed to the Second Circuit, arguing the arbitrators exceeded their powers, in violation of § 9 U.S.C. 10(d). Israel argued that Sperry I barred the arbitrators from prohibiting Israel from drawing down the letter of credit. Israel further argued that under New York law the arbitrators had no power to prevent Israel’s sole possession of proceeds of the letter of credit pending a decision on the contractual claims and counterclaims.

Rule of Law

Issue

Holding and Reasoning (Kearse, J.)

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