## Facts

- Sperry International Trade, Inc. contracted with the Government of Israel to design and build a communications system for the Israeli Air Force.
- The contract required Sperry to secure performance by procuring a clean, irrevocable letter of credit issued by Citibank in Israel’s favor, eventually set at about $15 million.
- The contract required arbitration in New York City under institutional rules that did not restrict arbitrators by nationality.
- After the project deteriorated, Sperry demanded arbitration, alleging Israel hindered performance and breached the contract; Israel asserted Sperry’s nonperformance justified drawing on the letter of credit.
- Sperry sued in federal district court seeking (1) a preliminary injunction to prevent Israel from drawing on the letter of credit pending arbitration and (2) an order preventing appointment of non-U.S. nationals as arbitrators.
- The district court granted the preliminary injunction barring Israel’s draw and declined to restrict arbitrator nationality.
- Israel appealed the injunction preventing the draw; the appeal also addressed the denial of relief concerning arbitrator nationality.

## Issues

1. Whether Sperry showed irreparable harm sufficient to justify a preliminary injunction preventing Israel from drawing on a clean, irrevocable letter of credit pending arbitration.
2. Whether Israel was entitled to injunctive relief barring the appointment of non-U.S. nationals as arbitrators.

## Decision

- The court reversed the preliminary injunction restraining Israel from drawing on the letter of credit because Sperry did not establish irreparable harm.
- The court affirmed the refusal to enjoin the appointment of non-U.S. nationals as arbitrators because neither the contract nor the governing arbitration rules imposed a nationality requirement and Israel’s bias concerns were speculative.

## Legal Principles

- A preliminary injunction requires proof of irreparable harm; harm that is primarily monetary and compensable by later damages or an arbitral award is ordinarily not irreparable.
- Courts are reluctant to interfere with draws on clean letters of credit based on underlying contract disputes; the letter of credit is generally independent of the merits of the parties’ performance claims.
- A party cannot obtain an injunction imposing arbitrator nationality restrictions absent a contractual or rule-based requirement; generalized fears of foreign arbitrator bias do not justify equitable relief.
- Concerns about arbitrator impartiality are addressed through challenges under applicable arbitration rules and, if necessary, limited post-award judicial review.

## Conclusion

The Second Circuit vacated an injunction blocking a draw on a performance-secured letter of credit because the movant showed only compensable financial harm, and it rejected an attempt to bar foreign arbitrators where the arbitration agreement and rules contained no nationality limitation.


Sperry Int’l Trade, Inc. v. Gov’t of Isr., 670 F.2d 8 (2d Cir. 1982)