Epstein Becker Green Obtains Dismissal of Letter of Credit Action
On July 2, 2009, Epstein Becker Green obtained a dismissal of a suit for $6 million against its client, China Construction Bank Corporation ("CCBC"), one of the largest banks in the People's Republic of China, arising from a letter of credit issued by CCBC. The suit, which was brought in New York Supreme Court, raised novel issues relating to the liabilities of parties to relatively rare "transfer" of letter of credit transactions.
A letter of credit (or "L/C") is used as a financing tool in international trade when an exporter does not want to rely on the creditworthiness of an importer. The L/C is a promise by the importer's bank (the "issuer") that it will pay the exporter of merchandise (the "beneficiary") the price of the merchandise on the receipt of export documents of title showing merely that the goods have been shipped, whether or not the underlying sales actually transaction is performed. Sometimes the exporter's bank will, with the issuer's express permission, "transfer" the L/C to "secondary beneficiaries," who are usually the exporter's subcontractors, to pay them for their part of the manufacture of the merchandise. The issuer will ultimately be responsible for the entire L/C payment if all parties to the transaction follow the international rules governing L/C transactions.
The transaction here involved a shipload of iron ore to be exported from Venezuela to China and a L/C that CCBC had designed as "transferable." The beneficiary of CCBC's L/C directed its New York bank ("Bank M") to transfer $6 million of the $12 million L/C to the steamship owner to pay for the shipping costs. In order to be paid the $6 million, all the steamship owner had to do was fax a "certificate of readiness" to Bank M stating that the vessel had arrived in port to pick up the ore. The owner did just that.
Unfortunately, the exporter seems to have gone out of business and breached the sales contract; there was no ore to be loaded. Nevertheless, under L/C law, because the "certificate of readiness" was all Bank M had specified was needed to obtain payment, Bank M had to pay $6 million unless there were flaws in the documents presented to it. Bank M refused to pay on the transferred L/C. The steamship owner sued CCBC and Bank M for failing to honor the L/C, asserting that because Bank M was CCBC's agent when it transferred the L/C and the owner had established the requirement of the certificate of readiness and presented a proper certificate, CCBC was therefore liable for $6 million.
In a lengthy opinion that explained, in detail for the first time in New York, the rights and obligations of the diverse various parties to "transferred" letters of credit, the court accepted EBG's arguments and granted CCBC's motion for summary judgment dismissing the steamship owner's claim against CCBC, while holding Bank M liable for $6 million. Applying the L/C rules of the International Chamber of Commerce, the court held that Bank M, as the transferring bank, could not bind CCBC by the transfer even though CCBC's L/C expressly permitted transfers. This is because the terms of the transferred L/C varied from the original L/C and Bank M exceeded its authority in transferring the L/C so as to require a certificate of readiness. AP Marine Ltd. v. China Construction Bank Corp., N.Y. Co. Index No 602-517/08.
Kenneth J. Kelly, Victoria Sloan and Jian Hang represented CCBC in the litigation.
Epstein Becker Green Achieves Twin Victories in Investment Banking Bonus Arbitrations
Epstein Becker Green obtained awards dismissing the claims of nine investment bankers in two arbitrations for bonuses totaling more than $10 million in January and April 2013. Our client, an investment banking firm, had decided as a result of the 2008 crash to award "provisional" bonuses in December 2008 that were subject to adjustment, depending on the firm's then-undetermined audited year-end financial results. Because the firm lost several billion dollars and had to borrow TARP-like funds from the government to maintain its capital requirements, the directors reduced the provisional awards by 90 percent across the board.
The bankers commenced two arbitrations before FINRA for the unpaid balances, claiming breaches of contract and detrimental reliance, on the basis that their particular business units did not contribute to the firm's loss. The firm defended by arguing that, because the bonuses were discretionary, it could properly place decisive weight on its overall performance. Further, the firm argued that the bankers' reliance argument was undermined by layoffs and hiring freezes globally in the financial services industry—a fact confirmed in the bankers' internal emails.
The two panels independently awarded "zero" to the two groups of bankers and dismissed all of the claims. Kenneth J. Kelly and Diana C. Gomprecht led the Epstein Becker Green defense team in both cases.
Facilitating Health Care Investments
During the past decade, private equity firms have been heavily investing in the health care industry. Deal opportunities in health care continue to abound, and they’re driving investor interest and fierce competition.
With its robust health care M&A practice, Epstein Becker Green has extensive experience with health care mergers and acquisitions and other complex business transactions. We advise on dozens of health care deals every year, including working with venture capital and private equity funds on health-related targets.
To date, Epstein Becker Green has worked with more than 100 private equity clients on their health care investments. A few of the 2017 transactions handled by Epstein Becker Green in this space include the following:
- We provided health regulatory due diligence advice and counsel to our client, a provider of technology-driven solutions across the health care delivery system, in its acquisition of a vendor of business process outsourcing services for government-financed health plans. The combination of capabilities resulting from this acquisition will significantly enhance our client’s business process platforms.
- We gave health regulatory due diligence advice and counsel to our client, an integrated Medicare Advantage health plan and health care delivery network, in its sale to a major health benefits company.
- We represented our client, a medical benefits management company that seeks to contain health care costs and identify opportunities to improve the quality of care, in its sale to a major pharmacy benefits manager. This deal would help the combined company manage medical spending while delivering quality outcomes.
- We provided health regulatory due diligence advice and counsel to a global investment firm in connection with the merger of two large pediatric-focused home health care providers. The merged company, which will be an even larger provider of pediatric home health care services, will be part owned by our client.
- We provided advice regarding a global investment firm’s financial support of a publicly traded chain of outpatient surgery centers during the acquisition of one of the chain’s smaller competitors.
Protecting Companies That Use Chatbots for Certain HR Functions
Increasingly, companies are using “chatbots” for lower-level human resources (HR) functions, such as tracking employees’ paid time off, leave, or benefits. (A “chatbot” is a computer program that uses artificial intelligence (AI) to simulate conversation with human users—for example, a chatbot may appear in a pop-up window on a website that asks whether a visitor needs any assistance.) Some companies are even evaluating whether they should complement humans with chatbots to take in internal complaints of discrimination or harassment. Although management and HR personnel may embrace chatbots to increase efficiency and reduce subjectivity, there are legal risks involved with adopting this technology.
Epstein Becker Green provides advice and counsel to clients that use, or are considering using, chatbots and want to mitigate their legal risks. We recently assisted clients in the retail and financial services industries with their chatbots. Our attorneys evaluated the questions asked by these chatbots to ensure that the algorithms, among other things, are able to distinguish between various types of employee requests—such as requests for sick leave, Family and Medical Leave Act leave, a regular day off, or an accommodation under the Americans with Disabilities Act. In addition, we made sure that our clients' chatbots have built-in processes to elevate certain matters for human review and are creating a favorable experience for employee-users.
Helping HR Departments Minimize Risk When Using AI Tools in Hiring
Human resources (HR) departments are progressively turning to artificial intelligence (AI) tools to assist in the process of recruiting and vetting job applicants. AI vendors claim that their tools can quickly and seamlessly identify the best candidates for open positions. Despite such claims, these tools have the potential to perpetuate stereotypes, disparately impact certain populations, and present troublesome issues relating to people with disabilities—leaving employers vulnerable to class or collective actions.
Epstein Becker Green understands both the promise and pitfalls of AI, and our attorneys have experience counseling clients on how to maximize the benefits of AI in recruitment and selection while minimizing potential risks. Recently, two clients—a major financial institution and a restaurant chain—sought Epstein Becker Green’s help in evaluating AI vendors for their employee recruitment, selection, and onboarding functions. Our attorneys assisted our clients in assessing the product offerings, reviewing vendor contracts, identifying the appropriate questions to ask the vendors about their AI products, monitoring and testing those products, and evaluating whether those products would raise red flags from a legal perspective.