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American Bell International, Inc. v. Islamic Republic of Iran | 474 F. Supp. 420 (1979)

It’s a big deal to seek an injunction preventing a bank from honoring a letter of credit. The court in American Bell International, Incorporated versus Islamic Republic of Iran considered when such an injunction may be granted.

In nineteen seventy-eight, Bell contracted to provide communications equipment and consulting services to the Imperial Government of Iran’s Ministry of War for two hundred eighty million dollars. Iran initially deposited thirty-eight million eight hundred thousand dollars with Bell. The contract granted the Imperial Government the right to demand the return of the unused portion of this down payment at any time, with or without cause.

As the contract required, Bell established an unconditional and irrevocable Letter of Guaranty from Bank Iranshahr, an Iranian bank, to the Imperial Government. Bell also obtained a standby Letter of Credit from Manufacturers Hanover Trust Company in favor of Bank Iranshahr. If the Imperial Government demanded return of its unused down payment under the Letter of Guaranty, Bank Iranshahr would pay, then demand reimbursement from Manufacturers. Bell would then reimburse Manufacturers.

Bell began performing pursuant to the contract. Bell submitted invoices to the Imperial Government, some of which were paid.

In January of nineteen seventy-nine, the Imperial Government was overthrown and replaced by the Islamic Republic of Iran. Bell, left with substantial unpaid invoices, ceased performance about that time. In July, the Islamic Republic demanded payment from Bank Iranshahr. Bank Iranshahr paid over thirty million dollars, then demanded reimbursement from Manufacturers. The demand didn’t conform to the Letter of Credit, so Manufacturers declined payment.

Bell sued the Islamic Republic of Iran, Bank Iranshahr, and Manufacturers, then moved for an injunction prohibiting Manufacturers from honoring any demand under the Letter of Credit. Then, on August the first, Manufacturers received a conforming demand from Bank Iranshahr, except the payee was identified as the Government of Iran Ministry of Defense, Successor to the Imperial Government of Iran Ministry of War. The district court temporarily enjoined payment then held an evidentiary hearing on Bell’s motion.

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