TC Skyward Aviation U.S., Inc. v. Deutsche Bank AG, New York Branch

TAM Linhad Aereas, S.A. (TAM) and 777 Leasing, LLC entered into a sale and leaseback agreement (agreement) pursuant to which 777 Leasing agreed to buy from and lease back to TAM certain airline components (inventory). To fund the purchase, 777 Leasing entered into a financing agreement with TC Skyward Aviation U.S., Inc. (TC) (plaintiff), which granted TC a lien in the inventory. As required by the agreement, TAM caused Deutsche Bank AG, New York Branch (bank) (defendant) to issue an irrevocable standby letter of credit (LOC) in TC’s favor. TC was entitled to draw on the LOC when money became due and payable by TAM under the agreement. Under the agreement, TAM’s default, including the filing of a bankruptcy petition, rendered certain amounts payable. The LOC provided that the bank would pay TC upon the submission of a draw request and specific supporting documentation. After TAM filed for bankruptcy, TC submitted a draw request to the bank in accordance with the LOC’s requirements. TAM objected, asserting that no money was due and owing under the agreement and that TAM had not defaulted. TAM further argued that the agreement clause purporting to define a default as the filing of a bankruptcy petition violated the bankruptcy code and was unenforceable. The bank refused to pay. TC sued for wrongful dishonor. The bank moved to dismiss, asserting the affirmative defense of fraud. TC moved for summary judgment.