Commercial Division Blog

Posted: January 31, 2025 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Commercial, Trial, Negligent Misrepresentation

Court Dismisses Negligent Misrepresentation Case After Trial Because Defendant Did Not Have A Duty To Vet Bank

On December 23, 2024, Justice Melissa A. Crane dismissed Plaintiff’s remaining claim for negligent misrepresentation in a Decision After Bench Trial in ERA Capital L.P. v. Soleil Chartered Bank, Index No. 651984/2019.  The dispute arose from a failed letter of credit ("LC") transaction that involved plaintiff ERA Capital L.P. ("ERA") and defendants Soleil Chartered Bank (individually, "SCB"), Soleil Capitale Corporation (individually "SCC," but together with SCB, "Soleil"), and Regions Bank ("Regions"). ERA alleges that Regions, who merely "advised" on the LCs, failed to investigate Soleil. Instead, according to plaintiff, Regions negligently told plaintiff that Soleil was "good" to be the LC's issuer, even after Regions received information that plaintiff claims should have led it to suspect that Soleil would issue LCs with no intention of making good on them.

The Court determined that plaintiff failed to carry its burden to establish: (1) Regions had a duty to vet the bank or verify collateral; (2) the parties had a special relationship sufficient to satisfy a claim for negligent misrepresentation; (3) the information Regions did impart was incorrect; and (4) reasonable reliance.  As to the first two points, the Court explained: 

Here, plaintiff has not carried its burden to show that it had a special relationship with Regions. First, plaintiff has failed to show Regions knew its work was to be used for the particular purpose to vet the bank or ensure collateral was in place, such that a special relationship was formed relating to this issue. There is nothing in the record to support that: (1) Regions took on that responsibility, or (2) even knew that ERA wanted it to take on that responsibility.

Aside from Shapira's testimony that Regions was supposed to vet the bank, there is no proof. Moreover, Shapira's testimony does not hold up to scrutiny. In addition to his general lack of credibility, Shapira states at paragraph 25 of his direct affidavit that "McCorkell ended up recommending Soleil." This is not true. Shapira well knows that Soleil came into the picture through Bramly's WhatsApp message containing Bramly's draft letter of credit with the bait and switched name of the bank to SCB (D83-85). Yet, despite its high expectations of Regions, ERA gave Regions absolutely no details about its interactions with Bramly, or that Bramly was responsible for the switch in bank names.

There is not a shred of evidence that Shapira hired Regions to vet the bank. Rather, the evidence is to the contrary. For example, it is undisputed that Shapira never paid Regions to investigate. The only fees Regions received totaled $510, a $355 advising fee on the $900k LC and a $155 advising fee on the $1.8M LC. ERA did not even pay these fees. SCC paid them. There is no evidence that ERA paid anything to Regions, and no documents exist showing that ERA hired Regions to investigate either SCB or SCC.

What the record does support is that Regions' role was limited. Foremost, Regions' letters explicitly denied any role beyond advising on the LC: "THIS LETTER IS SOLELY AN ADVICE OF THE ENCLOSED IRREVOCABLE STANDBY [LC] AND CONVEYS NO ENGAGEMENT OR RESPONSIBILITY ON OUR PART." This letter, sent after Region's supposed misleading statements, expressly states that there was no engagement other than advising on the letter of credit. Advising does not include vetting the bank or checking collateral. Shapira, as a sophisticated investor, should have known this, especially after Mccorkell informed Shapira that Regions would only confirm an LC, which entailed greater responsibility on the part of Regions, if the issuer complied with certain requirements (Mccorkell Aff., ¶8; J-8). The letter also expressly disclaims responsibility. Given the language of the disclaimer, Shapira should at least have inquired.

The attorneys at Schlam Stone & Dolan frequently handle trials and litigate negligent misrepresentation claims.  Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such claims.