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Note: Alstom Power, Inc. (Contractor/ Beneficiary) entered into an engineering, procurement and construction contract to re-power the Seward Power Plant in Indiana County, Pennsylvania. To fulfill its obligation, Contractor executed a purchase order to RMF Industrial Contracting, Inc. (Subcontractor) for the erection of two circulating fluidized bed boilers and other ancillary components for the price of US$45,888,000. To assure performance, Philip Services Corporation (Applicant), Subcontractor's parent company, provided a guarantee secured by a US$5,000,000 standby LC issued by Wells Fargo to Contractor as Beneficiary.

Because Subcontractor's performance was hampered by various problems, Subcontractor submitted various letters to Contractor/Beneficiary requesting an extension of time to meet certain milestone dates. Subcontractor alleged that some problems were cause by Contractor/Beneficiary (i.e., insufficient laydown area, lack of site maintenance, schedule delay and scope growth), while others (i.e., an extremely harsh winter) were beyond its control.

Subsequently, Subcontractor submitted an "as-impacted" schedule to Contractor/Beneficiary indicating that it would complete work six months later than required by the contract. Contractor/ Beneficiary refused, stating that Subcontractor failed to provide any justification for such an extension.

Subcontractor then asked Contractor/Beneficiary whether additional money would be available to compensate additional expenses incurred. Contractor/ Beneficiary responded that there was "no conclusive evidence" that Subcontractor was entitled to additional compensation. Subcontractor replied that "without the possibility of additional compensation" it would not continue to work. Accordingly, Subcontractor began to withdraw from the site.

As a result, Contractor/Beneficiary terminated its Agreement with Subcontractor. Among other alleged defaults, Contractor/Beneficiary stated that the termination was due to Subcontractor's failure to supply a sufficient number of skilled workers, materials and equipment to meet its required completion date, and Subcontractor's abandonment of its work on the project. Subcontractor later filed two mechanic's liens on the power plant property in Indiana County in the amount of US$35,900,000.

Contractor/Beneficiary then drew on the LC for the full amount of US$5,000,000 and filed a Complaint against Subcontractor for breach of contract. In its Answer, Subcontractor counterclaimed, alleging that Contractor/Beneficiary wrongfully drew on the LC and that it became immediately obligated to reimburse Applicant for the amounts paid to Contractor/ Beneficiary under the LC as a result of Contractor/ Beneficiary's draw on the LC, suffering an injury.

Contractor/Beneficiary moved for summary judgment, alleging that Subcontractor was not a party to the LC, did not supply the LC and had adduced no evidence that it had suffered damages due toContractor/Beneficiary's draw upon the LC. In this regard, Contractor/Beneficiary contended that Subcontractor had no standing to assert that it was entitled to the return of the funds drawn against the LC. Contractor/Beneficiary also contended that Subcontractor had presented no evidence of a written agreement between Subcontractor and Applicant whereby Applicant had promised to act as a surety or guarantor.

The US District Court for the Western District of Pennsylvania, McVerry, J., granted Contractor/ Beneficiary's Motion for Summary Judgment as to Subcontractor's claim on the US$5,000,000 LC.

The court agreed that Subcontractor had stated a cause of action. It noted that the drawing on the LC was, at least under Subcontractor 's theory, an "injury in fact" to Subcontractor, that there was a causal connection between the injury and the alleged breach of contract, and that it was likely that the injury would be redressed by a favorable decision in this case. Thus, the court found that Subcontractor "theoretically" had standing to assert a claim regarding the LC.

However, the court granted Contractor/ Beneficiary's Motion for Summary Judgment based on the lack of evidence of a written agreement between Contractor/Beneficiary and Applicant under which Applicant had promised to act as a surety or guarantor. In this regard the court ruled that "[u]nder Pennsylvania law a promise to answer for the debt of another must be in writing. As [Contractor/ Beneficiary] points out, despite [Subcontractor's]arguments, [Subcontractor] has not directed the Court to any evidence, testimonial or documentary, which establishes that [Subcontractor] owed (or owes) US$5,000,000 to [Applicant] due to [Contractor/ Beneficiary's] draw on the letter of credit. The Court agrees, and finds that there is no evidence that [Subcontractor] is under any obligation to reimburse [Applicant] for [Contractor/Beneficiary's] draw on the letter of credit. In other words, there is no evidence that [Subcontractor] has actually suffered any loss or injury due to [Contractor/Beneficiary's] draw on the letter of credit."

[JEB/mp]

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