Article

Note: To assure its delivery of railcars to Tri- County Metropolitan Transportation District of Oregon (Buyer), Colorado Railcar Manufacturing, LLC (Manufacturer) obtained an LC in favor of Buyer issued by KeyBank NA. The applicant for the LC was CRMII (Applicant) whose shareholders, including Mark Guetzko, Lisa Guetzko, Richard Altorfer, Seedorff Masonry, Inc., Dale Kartman, Susan Kartman (Guarantors) apparently guaranteed repayment of amounts disbursed under the LC.

When Buyer/Beneficiary drew on the LC, Guarantors obtained a temporary restraining order and temporary injunction in the Iowa state courts against payment by Issuer which removed the action from state court to the federal court. After removal, Buyer/Beneficiary moved to intervene in the action as a defendant. The Iowa Northern District Court, Scoles, Mag., granted the motion.

Buyer/Beneficiary claimed that it was the real party in interest and entitled to intervene as a matter of right under applicable procedural rules, F. R. Civ. Proc. 24. The rule requires that a person be permitted to intervene if there is a timely motion by a person with an interest in the transaction that is the subject of litigation whose outcome may impair that interest which is not otherwise protected by parties to the litigation.

Guarantors argued that the failure to oppose the state action rendered Buyer/Beneficiary's intervention in the federal action untimely. Rejecting this argument, the Judge noted that there was no authority supporting such an argument and that Buyer/ Beneficiary had intervened two days after removal to federal court.

The Judge also observed that Buyer/Beneficiary had an interest in the injunction that would be adversely affected by its award. The Judge also noted that Issuer, "has no particular interest in whether or not a permanent injunction is issued."

Comment:

It should be noted that Issuer filed a motion to oppose the grant of the injunction. Such a position is generally to be commended since injunctions diminish the integrity of the LC instrument. At the very least, an issuer should apprise the court of the standards applicable to injunctive relief. But even if the issuer had opposed the award, it would not be privy to the facts related to the necessary finding of LC fraud by the beneficiary and to what might be necessary to protect the interest of the beneficiary as required under Rev. UCC Section 5-109(b). The beneficiary is in the best situation to do so and as a matter of course should be permitted to intervene in any action for extraordinary relief that prevents honor of an LC.

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