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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2005 LC CASE SUMMARIES No. CV 04-1397-PHX-DGC, 2005 U.S.Dist. LEXIS 23920 (D. Ariz. Oct. 12, 2005)(Not selected for publication in the Federal Reporter) [U.S.A.] Abstracted by Jon W. BURD*
Topics: Attorneys' Fees; Revised U.C.C. Section 5-111(e); Remedies; Prevailing Party.
Type of Lawsuit: Issuer sued Beneficiary for Declaratory Judgment regarding to whom proceeds must be paid.
Parties: Plaintiff/Issuer - JP Morgan Chase Bank
(Represented by David Daniel Weinzweig and Richard A. Halloran, Lewis & Roca LLP, Phoenix, AZ)
Defendant/Beneficiary/Judgment Creditor - Tamarack Capital LLC and Tamarack Insurance, LLC
(Jack Daniel Klausner and James Brent Welker, Warner Angle Hallam Jackson &Formanek PLC, Phoenix, AZ)
Applicant/Judgment Debtor- Access Healthsource, Inc.
Underlying Transaction: Payment bond as security pending an appeal of damages award in Beneficiary's favor.
LC: Standby LC for US$1,108,032. Silent as to Rules of Practice.
Decision: The US District Court for the District of Arizona, Campbell, J., applying Arizona's Revised UCC Article 5, denied Issuer's motion for attorneys' fees and costs.
Rationale: Attorney's fees are not available to an issuer under Revised UCC, Section 5-111(e) for expenses in connection with obtaining a declaratory judgment even if it succeeds because declaratory judgment is not a remedy contemplated by Revised UCC Article 5.
Article
Factual Summary: In separate litigation, Judgment Creditor in the US federal district court in Texas, was awarded US$1,108,032 in damages. Pending Judgment Debtor's appeal, it obtained a standby LC in favor of Judgment Creditor/Beneficiary as security. In an unrelated civil action in the Texas state courts, a third party was awarded a US$10,000,000 judgment against Judgment Creditor/Beneficiary. The state court ordered that, in the event Beneficiary drew on the LC, Judgment Creditor's proceeds be paid into the registry of the state court pending resolution of the third party matter.
When Judgment Debtor's appeal was subsequently denied, the court authorized Judgment Creditor/Beneficiary to draw on the LC. Issuer sued for a declaratory judgment that its payment of LC proceeds into the Texas state court registry, consistent with that court's order, would not constitute wrongful dishonor or a breach of its obligation. Declaratory judgment was entered ordering Issuer to pay the proceeds into the court registry. Issuer then moved for attorneys' fees and expenses pursuant to the Arizona version of UCC Section 5-111(e). The trial court denied the motion.
Legal Analysis:
1. UCC Section 5-111(e); Attorneys' Fees; Prevailing Party; Remedies: Issuer argued that it was the "prevailing party" in the declaratory action against Beneficiary, and that it should accordingly be awarded attorneys' fees and expenses. Arizona's UCC Section 5-111(e) provides that "reasonable attorney fees and other expenses of litigation must be awarded to the prevailing party in an action in which a remedy is sought under [Revised UCC Article 5]." The trial court rejected this argument, concluding that the declaratory relief sought by the Issuer was not "a remedy sought under [Article 5]" and therefore could not be the basis for attorneys' fees under UCC Article 5.
Comment by Jon W. BURD:1.
One wonders why Issuer did not wait to be sued. In that situation, the action would be for wrongful dishonor, an action contemplated under the Revised UCC Article 5, which would entitle the issuer to attorney's fees. One also wonders, however, about this decision. A declaratory judgment action regarding whether the documents comply is not an action contemplated under Revised UCC Article 5 because the issuer should make up its own mind. Being required to pay the LC proceeds to an entity not named in the LC or an assignment and without the instructions of the beneficiary, however, is a different issue not settled under Article 5 notwithstanding the court order. Clarification of this question is not a matter for which either the issuer or the applicant should be required to pay and the issuer should not be required to risk contempt of court by refusing to make the ordered payment or to wrongfully refuse to honor in order to assure itself of recoupment of attorney's fees and costs.
[JEB/JWB]
* Mr. Jon W. Burd is a Member of the Maryland Bar.
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