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COA: Store not a beneficiary of letters of credit

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The Indiana Court of Appeals ruled a department store has no rights derived from letters of credit between a bank and the man developing the site for a new store location.

In Fifth Third Bank v. Kohl's Indiana L.P. and Kohl's Department Store, No. 82A01-0906-CV-272, Fifth Third Bank appealed the trial court's grant of summary judgment for Kohl's in the store's complaint seeking proceeds from letters of credit issued to the Evansville-Vanderburgh Area Plan Commission as beneficiary. The bank issued four letters of credit to Dennis Owens, who entered into an operation and easement agreement with Kohl's to develop a site for a store. The commission required Owens to provide the letters of credit.

Owens failed to perform the work to Kohl's satisfaction and they sued him for breach of contract. The suit asked the commission to draw on the letters of credit for repayment to Kohl's. Fifth Third then intervened in the suit.

The trial court treated the letters as performance bonds and granted summary judgment for Kohl's. The trial court based its decision on Comment 6 to Indiana Code Section 26-1-5.1-102, but that was an error, the appellate court ruled. The determination whether Owens failed to meet the requirements or stipulations should be made by the commission, not Fifth Third, wrote Judge Edward Najam. The bank isn't required as the issuer to make "the determination of an extrinsic fact" before the commission can draw on each letter of credit, and the exception set out in Comment 6 does not apply here, the judge found.

The trial court also erred in determining Kohl's was a third-party beneficiary to the letters of credit. The Court of Appeals adopted the reasoning in Arbest Construction Co. v. First National Bank & Co. of Oklahoma City, 777 F.2d 581 (10th Cir. 1985), which found no provision in Oklahoma statutes imposed duties on the issuer toward third parties who are neither named by the letter of credit nor proper assignees of the letter of credit.

"Indeed, Indiana Code Section 26-1-5.1-103(d) states that the rights and obligations of an issuer (here, Fifth Third) to a beneficiary (here, the Commission) under a letter of credit are independent of the existence, performance, or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary," wrote Judge Najam. "Under Section 103(d), the issuer of a letter of credit has no duty to a third party not named as a beneficiary or properly designated as an assignee."

The appellate judges remanded the case with instructions.

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  1. The practitioners and judges who hail E-filing as the Saviour of the West need to contain their respective excitements. E-filing is federal court requires the practitioner to cram his motion practice into pigeonholes created by IT people. Compound motions or those seeking alternative relief are effectively barred, unless the practitioner wants to receive a tart note from some functionary admonishing about the "problem". E-filing is just another method by which courts and judges transfer their burden to practitioners, who are the really the only powerless components of the system. Of COURSE it is easier for the court to require all of its imput to conform to certain formats, but this imposition does NOT improve the quality of the practice of law and does NOT improve the ability of the practitioner to advocate for his client or to fashion pleadings that exactly conform to his client's best interests. And we should be very wary of the disingenuous pablum about the costs. The courts will find a way to stick it to the practitioner. Lake County is a VERY good example of this rapaciousness. Any one who does not believe this is invited to review the various special fees that system imposes upon practitioners- as practitioners- and upon each case ON TOP of the court costs normal in every case manually filed. Jurisprudence according to Aldous Huxley.

  2. Any attorneys who practice in federal court should be able to say the same as I can ... efiling is great. I have been doing it in fed court since it started way back. Pacer has its drawbacks, but the ability to hit an e-docket and pull up anything and everything onscreen is a huge plus for a litigator, eps the sole practitioner, who lacks a filing clerk and the paralegal support of large firms. Were I an Indiana attorney I would welcome this great step forward.

  3. Can we get full disclosure on lobbyist's payments to legislatures such as Mr Buck? AS long as there are idiots that are disrespectful of neighbors and intent on shooting fireworks every night, some kind of regulations are needed.

  4. I am the mother of the child in this case. My silence on the matter was due to the fact that I filed, both in Illinois and Indiana, child support cases. I even filed supporting documentation with the Indiana family law court. Not sure whether this information was provided to the court of appeals or not. Wish the case was done before moving to Indiana, because no matter what, there is NO WAY the state of Illinois would have allowed an appeal on a child support case!

  5. "No one is safe when the Legislature is in session."

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