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* Ramsey R. SALEEBY is an Associate at Allen, Harold & Beard PLLC. This summary was submitted by Mr. SALEEBY. The facts have been reformatted and rearranged by the IIBLP staff to correspond with the formatting used in this volume but the legal analysis and comment are those of the author.

Topics: Reimbursement; Nominated Person; Confirmer; Jurisdiction; Revised UCC §5- 102 (a) (10); 5- 102 (a) (11); 5- 107 (b); 5- 111 (c); Letter of Credit; Nominated Bank; Damages; Estoppel; Trust Receipt; Letters of Credit, Classification

Note: In connection with the construction of a court facility, the Macomb County Board of Commissioners (County), the County executive of this Michigan political unit, required the General Contractor to obtain performance and payment bonds. It obtained them from E.C. Scarborough (Surety), a Washington D.C. individual operating as a surety. Surety in turn, obtained an Irrevocable Trust Receipt for US$ 6,108,600 from First Mountain Bancorp (Bank). As explained in the opinion, the purpose of the Trust Receipt was to "provide security for the performance and payment bonds". The Trust Receipt was said to be "established" in County's favor. The Trust Receipt also identified Virginia Commonwealth Trust Co. as a "Nominated Bank".

When General Contractor was terminated for contractual breaches, unpaid Subcontractors filed payment bond claims against Surety, who refused to pay them. County and Subcontractors sued Surety in State Court. County then filed a third-party complaint against Bank demanding that Subcontractors' payment bond claims be honored. Bank sought a declaratory judgment that the US$122,172 in premiums required to back the Surety's bonds could be paid to the Court. County agreed to dismiss its complaint against Bank in exchange for a refund of the premiums paid. Bank agreed, but defaulted. As a result, the court entered a judgment of $122,172 against Bank, which County unsuccessfully attempted to collect.

Turning to the "Nominated Bank", County sent a demand letter to StellarOne Bank f/k/a Virginia Commonwealth Trust Company (StellarOne), its successor by merger, but StellerOne did not respond. County then sued StellerOne for wrongful dishonor in the amount of US$ 122, 172 in the Michigan State courts but the action was removed to Federal court on StellerOne's motion and StellerOne moved to dismiss for lack of personal jurisdiction. The U.S. District Court for the Eastern District of Michigan, Edmunds, J., granted the motion.

The Judge stated that the "Trust Receipt" constituted a "letter of credit" as defined in Michigan's version of Revised UCC Article 5 and that StellerOne would fall within the definition of "Nominated Person" under Revised UCC §5- 102(a) (11). The Judge observed that there was no allegation that StellerOne had confirmed the Trust Receipt. The Judge noted that under Revised UCC § 5- 107 (b) "[a] nominated person who is not a confirmer is not obligated to honor or otherwise give value for a presentation". Since County had alleged that it had been induced by StellerOne's representations to believe that it was secured by and the beneficiary of the Trust Receipt, had reasonably so relied, and was damaged, the Judge addressed the question of whether there was personal jurisdiction. The Judge noted that Revised UCC § 5- 111 (c) provided "[i]f an advisor or nominated person other than a confirmer breaches an obligation under this article..., a person to whom the obligation is owed may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach".

The Judge stated that to have established personal jurisdiction over StellarOne, County must prove that the jurisdiction is authorized by law and would meet due process requirements. County claimed personal jurisdiction under Michigan's Long-Arm Statute which permits an action in tort if the tort was committed in Michigan or the consequences of the tort occurred in Michigan. The Judge did not find a basis for tort liability, noting that County acknowledged in its complaint, that the Trust Receipt is a letter of credit and, therefore, governed by UCC Article 5. The Court further ruled that County cannot argue that StellarOne acted as an insurer or guarantor of the Project.

County also argued that there was limited personal jurisdiction over StellarOne on the ground that Michigan's Long Arm Statute confers limited personal jurisdiction over corporations. County further alleged that minimum requirements of due process had been met, as StellarOne had purposefully availed itself in Michigan.

The Judge disagreed with this argument. The Judge noted that StellarOne and its predecessor had little or no contact with Michigan; StellarOne did not have an office in Michigan, no assets, no customers, did not solicit business in Michigan, did not advertise in Michigan, and maintained no other material ties to Michigan. The only contact between StellarOne and Michigan was the demand letter sent by County. As a result, the Judge dismissed this suit on the ground that County lacked personal jurisdiction over StellarOne.

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