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Note: Following a jury trial, Prisoner Transport Services of America (Applicant) caused Pinnacle Bank (Issuer) to issue a USD 595,254.50 irrevocable standby letter of credit in favor of Darren Richardson (Beneficiary) to secure the judgment awarded to Beneficiary as Applicant sought a stay of judgment and post-trial relief. To obtain payment, Beneficiary was required to present to Issuer:

(1) an ‘original or certified copy of th[e] Letter of Credit;’ and (2) a certified copy of a court order stating (a) that the judgment entered is final and can no longer be appealed, (b) that [Beneficiary] has demanded payment from [Applicant], (c) that more than ten days have elapsed without [Applicant] paying up in full, and (d) what [Beneficiary] is owed.

The standby was issued with a one-year term and contained an evergreen clause that would remain operative “unless [Issuer] notifie[d] [Beneficiary] and [Applicant] in writing” that the LC would not be automatically extended. The standby also provided that it would terminate if the district court entered “an order vacating the judgment in part” or if Issuer received a written statement from Applicant “copied via email or overnight mail to [Beneficiary], notifying [Issuer] that [Applicant] ha[d] terminated and cancelled th[e] Letter of Credit.”

Applicant applied to have the standby approved as “other security” under U.S. Fed. R. Civ. Pro. 62(b). Beneficiary opposed the motion arguing that the proposed standby constituted insufficient security. The United States District Court for the Middle District of Pennsylvania, Caputo, J., denied Applicant’s motion.

The principal issue was whether the standby LC “provide[d] sufficient protection” to the judgment creditor, thus assuring Beneficiary payment in full of the trial award in the event that the stay was granted. A Rule 62(b) stay is “automatic” if the proposed security is approved. Due to the various termination clauses, the Judge noted that the standby “fail[ed] to assure payment in full throughout post-trial and appellate proceedings, unlike a typical supersedeas bond.” In particular, the Judge noted that the “unilateral termination – achieved simply by [Applicant] notifying [Beneficiary] and [Issuer] – leaves [Beneficiary] no recourse.” The Judge noted that the same insufficiency obtained due to the possible termination of the standby if the court were to enter an order only partially vacating the judgment.

[MJK]

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