United States District Court, N.D. Illinois, Eastern Division
December 8, 2005.
AERO PRODUCTS INTERNATIONAL, INC., a Florida corporation, and ROBERT B. CHAFFEE, an individual, Plaintiffs,
INTEX RECREATION CORP., a California corporation; QUALITY TRADING, INC., a California corporation; and WAL-MART STORES, INC., a Delaware corporation Defendants.
The opinion of the court was delivered by: JOHN DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs, Aero Products International, Inc. and Robert B.
Chaffee, filed suit against Defendants, Intex Recreation
Corporation; Quality Trading, Inc.; and Wal-Mart Stores, Inc. On
September 15, 2004, after a jury trial, a final judgment was
entered against Intex and in favor of Plaintiffs in the amount of
approximately $7.25 million. Thereafter, Intex filed motions for
judgment as a matter of law and for a new trial; and Intex was
ordered to post a supersedeas bond, as required under Federal
Rule of Civil Procedure 62 (d). The Defendant Intex filed a
motion to stay the enforcement of this order. This was denied,
and Intex posted a letter of credit of approximately $7.25
million obtained from Wells Fargo Bank, located in San Francisco,
California. Aero moved to amend the judgment to incorporate
attorney's fees, additional royalties from sales, and damages. On November 7, 2005, the Amended Judgment was entered for
approximately $12.9 million. The permanent injunction entered by
the Court on September 14, 2004, was incorporated therein as part
of the final judgment. Intex was again ordered to file an
appropriate supersedeas bond pursuant to Fed.R.Civ.P. 62 (d)
within 10 days from this entry of judgment. Intex did not return
to Wells Fargo Bank, which issued its first letter of credit, or
to any other U.S. financial institution. Rather, Intex proposed
obtaining a letter of credit issued by the Hong Kong and Shanghai
Bank Corporation ("HSBC"). This letter of credit "is available at
the counters of Hong Kong and Shanghai Bank Corp., Mongkok,
Kowloon, Hong Kong."
At a status hearing on November 3, 2005, counsel for Aero
raised concerns about the supersedeas bond issued by the HSBC,
noting that because the bank was located in a foreign
jurisdiction, this Court's enforcement jurisdiction could be
limited. Aero requested that Intex be required to submit a letter
of credit from a U.S. financial institution. Intex disagreed,
stating that submitting an alternative letter of credit would be
a significant hardship. This Court set a briefing schedule; the
parties were to file simultaneous submissions supporting their
positions, on November 17, 2005. Presently before this Court are
the parties' memoranda regarding the propriety of the letter of
credit issued as security under Local Rule 65.1 (b) (4).
In its memorandum, Aero submits that Intex's letter of credit
is "fraught with risk and uncertainty." (Pl.'s Memo. at 2.) Aero
warns that it is unclear whether personal jurisdiction can be
asserted over a foreign bank that has issued a letter of credit
to a beneficiary, simply by virtue of the issuance of the letter
of credit, citing LaSalle Business Credit, L.L.C. v. GCR
Eurodraw S.p.A., No. 03 C 6051, 2004 WL 1880004, *8 (N.D.Ill.
Aug. 18, 2004). Further, Aero contends that: "even if this Court were able to obtain jurisdiction over
Hong Kong and Shanghai Bank, it is not clear if Chinese laws
would allow this Court to order a Chinese bank to disgorge
substantial funds to a U.S. company." (Pl.'s Memo. at 2.)
Intex counters that the HSBC is part of the third largest
banking institution in the world, that the location of the
financial institution will not affect Aero's ability to collect
on the letter of credit at the conclusion of the appeal, and that
uniform regulations for letters of credit are distributed by the
International Chamber of Commerce that are adhered to by banking
institutions all over the world.
The Federal Rules of Civil Procedure provide that:
When an appeal is taken the appellant by giving a
supersedeas bond may obtain a stay subject to the
exceptions contained in subdivision (a) of this rule.
The bond may be given at or after the time of filing
the notice of appeal or of procuring the order
allowing the appeal, as the case may be. The stay is
effective when the supersedeas bond is approved by
Fed.R.Civ.P. 62 (d). The Local Rule for the Northern District of
Illinois, LR 65.1 (b), further provides, "Every bond or similar
undertaking must be secured." LR 65.1 (b). The Rule states, "An
unconditional letter of credit is an approved form of security."
LR 65.1 (b) (4). The Rule is silent as to whether this letter of
credit must be secured by a U.S. banking institution, and neither
party has provided any case law interpreting this provision.
Federal Rule of Civil Procedure 62 (d) and Local Rule 65.1 are
intended to maintain the status quo and protect the appellee
(here, Aero) from loss while the appellant (here, Intex) appeals
a judgment against the appellant. See e.g., Miami Intern. Realty
Co. v. Paynter, 807 F.2d 871, 873 (10th Cir. 1986). This Court
has previously ruled, on November 3, 2004 and again on October
19, 2005, weighing the factors expounded in Dillon v. City of
Chicago, 866 F.2d 903, 904-05 (7th Cir. 1988), that posting a supersedeas bond was
While the HSBC may be a well-known financial institution and
that a letter of credit from a U.S. financial institution may be
of some hardship to Intex, the Court is charged with ensuring
that the judgment can be satisfied, if necessary, upon the
conclusion of the appeal. If this Court cannot assert personal
jurisdiction over the financial institution issuing the letter of
credit, this Court would be limited in its authority to protect
For the foregoing reasons, Intex is ordered to obtain an
appropriate letter of credit from a U.S. financial institution.
© 1992-2006 VersusLaw Inc.