## Facts

- United Technologies sold approximately $20 million of telephone cable to the Telecommunication Company of Iran (TCI).
- The sales contracts required United to obtain performance bonds from Iranians’ Bank in an amount roughly equal to 10% of the contract price, with contract terms contemplating reductions as shipments were delivered.
- To induce Iranians’ Bank to issue the performance bonds to TCI, United caused Citibank to issue two irrevocable letters of credit in favor of Iranians’ Bank totaling $2,003,295.
- United delivered all required cable by August 1978, and TCI paid in full; TCI made no claim of defective performance.
- The letters of credit permitted Iranians’ Bank to draw if it was required to pay TCI under the bonds or if its bond liability remained outstanding as of the credits’ expiration.
- In late 1978 and early 1979, amid civil unrest in Iran, Iranians’ Bank notified Citibank that its bond obligations had been extended and requested corresponding extension of a credit or payment; later it cabled demands for payment.
- United obtained a state-court temporary restraining order barring Citibank from honoring the credits; Citibank removed to federal court under 12 U.S.C. § 632.
- United sought remand to state court and, alternatively, a preliminary injunction to prevent Citibank from paying, arguing fraud in the transaction and untimely demands beyond stated expiration dates.

## Issues

1. Whether the action was properly removable and within federal jurisdiction under 12 U.S.C. § 632 as a dispute arising out of foreign banking transactions involving a national bank.
2. Whether a preliminary injunction should issue to prevent the issuing bank from honoring irrevocable letters of credit based on alleged fraud in the transaction and alleged untimeliness or improper extension beyond expiration.

## Decision

- The court denied United’s motion to remand, holding federal jurisdiction and removal were proper under 12 U.S.C. § 632.
- The court denied the motion for a preliminary injunction and dissolved the temporary restraining order.
- The court held United failed to make the required showing for injunctive relief in the letter-of-credit setting, where honoring facially conforming demands is strongly favored absent established, egregious fraud.

## Legal Principles

- Federal jurisdiction under 12 U.S.C. § 632 extends to civil suits involving national banks arising out of international or foreign banking transactions, including disputes over letters of credit connected to foreign commerce.
- A preliminary injunction requires either (a) likelihood of success on the merits and irreparable harm, or (b) serious questions going to the merits and a balance of hardships tipping decidedly toward the movant.
- The issuer’s obligation under a letter of credit is independent of the underlying commercial contract; banks generally must honor demands that comply on their face with the credit’s terms.
- Injunctions restraining honor of an irrevocable letter of credit are disfavored and are appropriate only upon a strong showing of fraud, typically requiring conduct so egregious that it vitiates the underlying transaction.
- Disputes about underlying performance, or about timeliness/extension questions that are not clearly established on the record, ordinarily should be resolved through subsequent claims between the bank and its customer (or against the beneficiary), rather than by enjoining honor to the beneficiary.

## Conclusion

The court retained federal jurisdiction under 12 U.S.C. § 632 and refused to enjoin payment on irrevocable letters of credit, holding that the independence of letters of credit and the need for prompt honor outweigh attempts to stop payment absent a clear, exceptionally serious showing of fraud or facial invalidity of the demand.


United Techs. Corp. v. Citibank, N.A., 469 F. Supp. 473 (S.D.N.Y. 1979)