Local Manufacturer Prevails on Appeal in Letter-of-Credit Case

Los Angeles manufacturer DBJJJ Inc., which does business as True Love, has won an appeal in the California Court of Appeals, Second District in its case against National City Bank.

The case hinges on a letter of credit issued by National City Bank. The letter was for $250,000 in merchandise manufactured by True Love for Warrendale, Pa.–based Pennsylvania Fashions, which operates juniors and young men’s apparel chain Rue 21.

After shipment of the goods, National City Bank declined payment, stating that discrepancies within the letter of credit’s required documents were not addressed within the time limit set out in the letter of credit.

“In this case, the conditions on the letter of credit made it impossible for the seller to meet the requirements,” said Jamie R. Schloss, a Los Angeles attorney representing True Love. “The credit terms were fairly onerous because the standards of review are so high.”

The letter of credit stipulated that the bank was to review the letter of credit and advise True Love and Pennsylvania Fashions of any discrepancies within the documents required by the letter of credit within “a reasonable time, not to exceed seven banking days.”

The appeals court reversed a lower-court ruling that was in favor of National City, noting, “Where a bank fails to timely examine documents and provide notice, it is precluded from arguing that the documentary presentation is nonconforming.”

The case was remanded back to the trial court in October. A new trial date has not yet been set.

Pennsylvania Fashions filed for Chapter 11 bankruptcy protection in 2002, shortly after the letter of credit was declined. At the time, Pennsylvania Fashions operated 247 Rue 21 stores in 39 states. The company emerged from bankruptcy in May 2003.

Richard B. Sheldon of Los Angeles law firm Mitchell Silverberg & Knupp, one of two law firms representing National City Bank, declined to comment because the case is still ongoing. —Alison A. Nieder