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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. He TIL team,please zap this comment too since it was merely marking a scammer and not reflecting on the story. Thanks, happy Monday, keep up the fine work.

  2. You just need my social security number sent to your Gmail account to process then loan, right? Beware scammers indeed.

  3. The appellate court just said doctors can be sued for reporting child abuse. The most dangerous form of child abuse with the highest mortality rate of any form of child abuse (between 6% and 9% according to the below listed studies). Now doctors will be far less likely to report this form of dangerous child abuse in Indiana. If you want to know what this is, google the names Lacey Spears, Julie Conley (and look at what happened when uninformed judges returned that child against medical advice), Hope Ybarra, and Dixie Blanchard. Here is some really good reporting on what this allegation was: http://media.star-telegram.com/Munchausenmoms/ Here are the two research papers: http://www.sciencedirect.com/science/article/pii/0145213487900810 http://www.sciencedirect.com/science/article/pii/S0145213403000309 25% of sibling are dead in that second study. 25%!!! Unbelievable ruling. Chilling. Wrong.

  4. Mr. Levin says that the BMV engaged in misconduct--that the BMV (or, rather, someone in the BMV) knew Indiana motorists were being overcharged fees but did nothing to correct the situation. Such misconduct, whether engaged in by one individual or by a group, is called theft (defined as knowingly or intentionally exerting unauthorized control over the property of another person with the intent to deprive the other person of the property's value or use). Theft is a crime in Indiana (as it still is in most of the civilized world). One wonders, then, why there have been no criminal prosecutions of BMV officials for this theft? Government misconduct doesn't occur in a vacuum. An individual who works for or oversees a government agency is responsible for the misconduct. In this instance, somebody (or somebodies) with the BMV, at some time, knew Indiana motorists were being overcharged. What's more, this person (or these people), even after having the error of their ways pointed out to them, did nothing to fix the problem. Instead, the overcharges continued. Thus, the taxpayers of Indiana are also on the hook for the millions of dollars in attorneys fees (for both sides; the BMV didn't see fit to avail itself of the services of a lawyer employed by the state government) that had to be spent in order to finally convince the BMV that stealing money from Indiana motorists was a bad thing. Given that the BMV official(s) responsible for this crime continued their misconduct, covered it up, and never did anything until the agency reached an agreeable settlement, it seems the statute of limitations for prosecuting these folks has not yet run. I hope our Attorney General is paying attention to this fiasco and is seriously considering prosecution. Indiana, the state that works . . . for thieves.

  5. I'm glad that attorney Carl Hayes, who represented the BMV in this case, is able to say that his client "is pleased to have resolved the issue". Everyone makes mistakes, even bureaucratic behemoths like Indiana's BMV. So to some extent we need to be forgiving of such mistakes. But when those mistakes are going to cost Indiana taxpayers millions of dollars to rectify (because neither plaintiff's counsel nor Mr. Hayes gave freely of their services, and the BMV, being a state-funded agency, relies on taxpayer dollars to pay these attorneys their fees), the agency doesn't have a right to feel "pleased to have resolved the issue". One is left wondering why the BMV feels so pleased with this resolution? The magnitude of the agency's overcharges might suggest to some that, perhaps, these errors were more than mere oversight. Could this be why the agency is so "pleased" with this resolution? Will Indiana motorists ever be assured that the culture of incompetence (if not worse) that the BMV seems to have fostered is no longer the status quo? Or will even more "overcharges" and lawsuits result? It's fairly obvious who is really "pleased to have resolved the issue", and it's not Indiana's taxpayers who are on the hook for the legal fees generated in these cases.

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