## Facts

- Verlinden B.V., a Dutch corporation, contracted with the Federal Republic of Nigeria to sell 240,000 metric tons of cement, with payment to be secured by an irrevocable letter of credit.
- The Central Bank of Nigeria, an agency or instrumentality of Nigeria, issued a documentary letter of credit in Verlinden’s favor for the contract price plus an open-ended amount for demurrage.
- The credit was advised and payable through Morgan Guaranty Trust Company of New York, the Central Bank’s correspondent bank.
- After severe congestion at Nigerian ports, Verlinden alleged the Central Bank unilaterally altered the letter of credit without beneficiary consent and repudiated its obligations, constituting anticipatory breach.
- Verlinden sued only the Central Bank (not Nigeria) in the Southern District of New York, seeking relief based on the letter of credit rather than the underlying cement contract.
- The Central Bank moved to dismiss, asserting FSIA immunity and challenging subject-matter jurisdiction, personal jurisdiction, and venue.

## Issues

1. Whether the Central Bank was immune under the FSIA or whether the commercial-activity exception applied, including whether the alleged breach caused a “direct effect in the United States.”
2. Whether FSIA jurisdiction permits a suit in U.S. federal court by a foreign plaintiff against a foreign state’s instrumentality.
3. Whether the Central Bank could invoke the cement contract’s arbitration clause and related defenses to bar or defeat claims based on the letter of credit.
4. Whether the court had personal jurisdiction over the Central Bank under the FSIA and whether venue in the Southern District of New York was proper.

## Decision

- The court held that FSIA § 1330(a) permits suits by foreign plaintiffs against foreign states or instrumentalities when an FSIA exception to immunity applies.
- The court found the letter-of-credit transaction was “commercial activity” and that alleged nonpayment through a New York correspondent bank had a “direct effect in the United States,” defeating immunity under 28 U.S.C. § 1605(a)(2).
- The court held the Central Bank, not being a party to the cement contract, could not rely on that contract’s arbitration clause to bar the action on the letter of credit.
- The court found personal jurisdiction satisfied under the FSIA framework and due process because of proper service and the Central Bank’s deliberate use of a New York correspondent bank.
- The court found venue proper and denied the motion to dismiss, allowing the action to proceed.

## Legal Principles

- Under the FSIA, subject-matter jurisdiction exists over a foreign state or its instrumentality only when the defendant is not entitled to immunity under §§ 1605–1607.
- Issuance and administration of a letter of credit through U.S. banking channels is commercial conduct; alleged nonperformance can satisfy the FSIA “direct effect in the United States” requirement when payment is to occur through a U.S. bank.
- A letter of credit is treated as an autonomous undertaking; defenses and dispute-resolution clauses in an underlying sales contract generally do not bind a non-signatory issuing bank in litigation on the credit.
- Under the FSIA’s integrated jurisdictional scheme, personal jurisdiction may follow from subject-matter jurisdiction plus proper service, subject to due process; purposeful use of a U.S. correspondent bank can supply the necessary minimum contacts.

## Conclusion

The court concluded that the Central Bank’s New York-payable letter-of-credit obligations fell within the FSIA commercial-activity exception and produced a direct U.S. effect, that the FSIA permits foreign-plaintiff suits where an exception applies, and that neither the underlying contract’s arbitration clause nor jurisdictional objections required dismissal.


Verlinden B.V. v. Cent. Bank of Nigeria, 488 F. Supp. 1284 (S.D.N.Y. 1980)