## Facts

- Starting in 2003, Amardeep Garments Industries Pvt. Ltd. (Amardeep) exported garments from Asia to 4004 Inc., a U.S. apparel buyer.
- Between about August 2006 and February 2008, Cathay Bank acted as an intermediary/collecting bank for Amardeep’s transactions with 4004.
- During that period, the parties used a documents-against-payment (D/P) collection process: Amardeep shipped goods and delivered title/shipping documents, payment instructions, and bills of exchange to Cathay; Cathay released the documents to 4004 only after payment.
- The D/P bills of exchange listed Cathay as the drawee; Amardeep contended this arrangement meant Cathay was guaranteeing payment on the transactions.
- In February 2008, at 4004’s request, the parties switched to a documents-against-acceptance (D/A) process, under which Cathay would release documents to 4004 upon acceptance rather than upon payment.
- Amardeep alleged it agreed to the D/A change because it believed Cathay would continue to be listed as drawee on the bills of exchange (and therefore would continue to stand behind payment).
- The parties later agreed to Cathay’s request to revise the February bills of exchange to remove Cathay as drawee.
- 4004 then filed for bankruptcy and did not pay Amardeep for certain shipments.
- Amardeep sued Cathay (initially in federal court in New York, later transferred to the Central District of California), asserting claims including breach of contract based on course of conduct, breach of the implied covenant of good faith and fair dealing, fraud, conversion, negligence, and negligent misrepresentation.
- Amardeep’s theory largely rested on alleged non-disclosure: that Cathay should have disclosed (1) that Cathay would not be guaranteeing payment once it was removed as drawee and (2) that 4004’s financial condition was precarious.
- Cathay moved to dismiss after transfer.

## Issues

1. Whether Cathay, acting as an intermediary/collecting bank in documentary collection transactions, owed Amardeep a legal duty to affirmatively explain that Cathay was not guaranteeing payment once it was removed as drawee on the bills of exchange.
2. Whether a prior course of dealing (including earlier bills listing Cathay as drawee), or implied contract/implied covenant theories, imposed an obligation on Cathay to continue guaranteeing payment or to provide additional warning before ceasing to do so.
3. Whether Cathay owed Amardeep a duty to disclose information about 4004’s alleged financial distress.

## Decision

- The court concluded Cathay did not owe Amardeep the asserted duty to provide additional explanatory warnings that Cathay would not guarantee payment after being removed as drawee.
- The court rejected attempts to impose a continuing guaranty obligation on Cathay based on course of dealing or implied duties where Cathay did not expressly undertake to guarantee the buyer’s payment.
- The court determined Cathay had no affirmative duty, in this arm’s-length commercial setting, to disclose 4004’s financial condition to Amardeep.
- Because Amardeep’s claims depended substantially on these alleged duties to disclose or warn, Cathay obtained dismissal of the complaint’s duty-based theories.

## Legal Principles

- In a documentary collection, a collecting/intermediary bank’s obligations generally arise from the collection instructions and any express undertakings; the bank is not automatically responsible for the buyer’s underlying payment risk.
- A bank’s prior participation in transactions, even over an extended period, does not by itself create an implied promise to guarantee future payments absent a clear agreement.
- When transactional documents are revised to remove a bank as drawee, the change may be legally sufficient to communicate that the bank is not acting as a guarantor; without a separate duty to speak, the bank need not provide additional explanations.
- Banks typically have no affirmative duty to disclose a customer’s financial condition to a third-party counterparty in an arm’s-length transaction without a special relationship, a partial disclosure that becomes misleading, or another recognized basis for liability.
- Claims for fraud, negligent misrepresentation, negligence, and implied contractual theories that depend on proving a threshold duty to disclose or warn fail when no such duty is plausibly alleged.

## Conclusion

In *Amardeep Garments Industries Pvt. v. Cathay Bank*, the court held that Cathay, acting as an intermediary/collecting bank, owed no legal duty to provide extra warnings that it would not guarantee payment once it was removed as drawee, and it also had no duty to disclose the buyer’s financial condition; because Amardeep’s claims relied on those asserted duties, Cathay prevailed on the duty-based dismissal.


Amardeep Garments Industries Pvt. v. Cathay Bank, 2012 WL 12886849 (2012)