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Note: In connection with the issuance of an LC by National City Bank (Issuer) , supporting industrial revenue bonds, Bunting Bearings LLC (Applicant) undertook to reimburse Issuer. Applicant subsequently filed for relief under Chapter 11 of the U.S. Bankruptcy Code (reorganization). A company with the same name (Company) was formed to purchase the assets and, to obtain Issuer's consent as a major creditor, Company assumed the Applicant's obligations to Issuer. At that time, Issuer formally discharged Applicant's obligations.

Subsequently, Issuer moved to set off US$36,031.16 as charges for fees against US$27,994.77 that it owed to Applicant for excess fees and interest. The debt was due to legal fees relevant to the bankruptcy and title work. Company disputed the charge.

The US Bankruptcy Court for the Northern District of Ohio, Speer, J., granted Issuer's motion to offset. The court quoted the following text from the Reimbursement Agreement:

[Applicant] agrees to pay to [Issuer] a Commitment Fee with respect to the issuance and maintenance of the Letter of Credit from the Date of Issuance to and including the Termination Date... If the Termination Date shall occur prior to the Stated Expiration Date...[Applicant] shall have no obligation to pay a Commitment Fee after the Termination Date.[Applicant] shall not be entitled to a rebate of any portion of the Commitment Fee paid to[Issuer].

To the extent permitted by law, [Applicant] hereby indemnifies and holds harmless [Issuer] from and against any and all claims, damages, losses, liabilities, reasonable costs and expenses whatsoever (including reasonable attorney's fees) which [Issuer] may incur... by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit.

The court rejected Company's argument that any right to charge additional fees was ended when Issuer discharged Applicant's obligation and agreed to the sale of assets, noting that this event did not constitute a "termination" within the meaning of the Reimbursement Agreement.

Company also argued that legal fees were already added into the increased LC fees. Noting that there was a separate provision in the Reimbursement Agreement providing for indemnification of legal fees, the court concluded that Company had not proven any modification of this provision.

[JEB/jjdd]

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