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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2004 LC CASE SUMMARIES NO. 03-cv-719, 2004 U.S. Dist. LEXIS 16578 (E.D. Pa. Aug. 4, 2004.) [U.S.A.]
Topics: U.S. Constitutional Claims; Due Process
Type of Lawsuit: Applicant sued Beneficiary for wrongfully drawing on LC and violation of constitutional property interests.
Parties:
Plaintiff/Applicant- John Granahan, Jr., Evelyn Granahan, Quaker Homes, Inc. (Counsel: John S. Harrison, Broughal & Devito, LLP, Bethlehem, PA)
Defendant/Beneficiary- Borough of Pennsburg, The Borough Council of the Borough of Pennsburg, CZOP/Spector, Inc. (Counsel: John P. Gonzales and Joseph J. Santarone, Jr, Marshall, Dennehey, Warner Coleman & Goggin, Norristown, PA)
Underlying Transaction: Construction of improvements to a residential subdivision.
LC: Performance standby LC for US$505,100. Silent as to governing rules.
Decision: United States District Court for the Eastern District of Pennsylvania, O'Neill, J., granted Beneficiary's motion for summary judgment.
Rationale: Where a local government is a beneficiary of an LC, the applicant has no constitutional rights to advance notice of a drawing. The LC itself reflects a waiver of any due process rights to advance notice.
Article
Factual Summary: To assure construction of improvements in a residential housing subdivision, Applicant obtained standby LC in favor of local government as Beneficiary pursuant to agreement between them. When the required improvements such as landscaping, streets, and walkways, were not completed within the specified time, Beneficiary demanded that Applicant increase the amount of the LC pursuant to the agreement. After Beneficiary received no response, it declared that Applicant was in default and drew on in the amount of $136,698.15. Beneficiary also ordered that Applicant cease work on the improvements.
Applicant claimed violation of its due process rights, and sued Beneficiary for wrongful drawing. On its motion, summary judgment was awarded to Beneficiary.
Legal Analysis:
1. Applicant claimed that it was deprived of its right to procedural due process under the Fourteenth Amendment to the US Constitution. In rejecting this claim, the court ruled that the "letter of credit in this case is not a property interest protectable by the due process clause" and did not require prior notice of the drawing since neither the state contract nor the LC conferred a protected status or included a provision permitting termination only for cause. The court stated that "by its very terms, the letter of credit is a waiver of any due process right to notice before the drawdown". The court also rejected Applicant's substantive due process claim, noting that the government was simply acting within the scope of its contractual rights. The court stated that even if, as alleged, officers of the government acted with personal animus, it did not constitute a violation of Applicant's substantive due process rights. In addition, the court ruled that Applicant had offered no proof that it was treated differently from other contractors in granting summary judgment on its equal protection claims.
[JEB/tas]
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