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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1999 LC CASE SUMMARIES 1999 U.S. Dist. LEXIS 8685 (M.D.Pa.) [U.S.A.]
Topics:
Due Process
Type of Lawsuit:
Suit by applicant against beneficiary for violations of procedural and substantive due process by drawing on a letter of credit without notice and the opportunity for hearing, and for state contract claims, conversions and unjust enrichment.
Parties:
Plaintiff/Developer/Applicant- Joseph A. Meyers (Counsel: Daniel M. Frey)
Defendant/Local Government/Beneficiary- Penn Township and its Board of Com-missioners (Counsel: Walter A. Tilley, III of Stetler & Gribbin)
Underlying Transaction:
Zoning plans for real estate development.
LC:
Standby for US$ 85,000 to assure completion of improvements required by zoning plan. No indication that subject to any rules.
Decision:
The U.S. District Court for the Middle District of Pennsylvania, Caldwell, J., granted the beneficiary's Motion to Dismiss.
Rationale:
Contract claims related to a LC do not give rise to a due process claim and, even if they did, a term in the credit permitting it to be drawn without notice constitutes a waiver of any right to prior notice.
Article
Factual Summary:
To assure construction of improvements required by a residential development zoning plan, the applicant obtained issuance of a standby LC. The standby required presentation of a statement to the effect that improvements were not satisfactorily performed and that the sum demanded was owed to the Township as a result.
According to the Complaint, the completion of the improvements required access to adjoining property that the beneficiary had agreed to obtain, that the applicant had paid the beneficiary to obtain such access, that it had failed to act, that it had amended the zoning plan to prohibit development of adjoining lots, and that it had wrongfully drawn down $55,495 on the standby. The applicant contended that these actions amounted to an unconstitutional deprivation of property in violation of his right to due process. The applicant argued that he had a right to prompt release from liability after completing improvements and a specific statutory entitlement to have his funds used only for the purposes agreed.
Legal Analysis:
The court rejected these arguments, ruling that the requisite protected interest in property was absent. The court noted that general contract rights are not property protected by the Due Process Clause of the Constitution unless they are a contract to protect a conferred status or can be terminated only for cause, neither of which was applicable. Moreover, the court concluded that even if there were a due process right, it was waived by virtue of the terms of the letter of credit which permitted drawing by demand and without notice. "The plaintiff is a real estate developer. He cannot now be heard to complain that the funds were taken without notice when the [beneficiary] did what he explicitly agreed that it could do." The contract claims were dismissed with the notation that they could be raised in an action in the state courts.
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COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.